Natural gas prices are finally turning around, hitting multi-month highs – and piquing the interest of legendary investors who say the commodity has a lot higher to climb.
While most commodities are moving lower in price – some quite sharply – natural gas has soared in 2013.
The June natural gas futures contract on Monday settled at $4.392 per million BTU, putting it up 31% so far this year. This makes natural gas the top performer among the 24 commodities in the Standard & Poor's GSCI index.
Noted contrarian investor Jeremy Grantham of GMO Asset Management is among the natural gas bulls. He recently told a value investing conference in Toronto that investing in natural gas at today's low prices is a no-brainer.
Grantham believes the current glut in natural gas will turn into a shortage. With the price in the U.S. so low in comparison to global prices, he says overwhelming demand for natural gas from users such as plastics manufacturers, petrochemical companies and fertilizer makers will push the commodity into a shortage situation.
He expressed to everyone in the audience how bullish he is when he stated that within five years "the price will have tripled."
Indeed, natural gas prices have room to run.
As famed investor Jim Rogers pointed out in an exclusive interview with Money Morning, natural gas is about 70% from its all-time high.
Natural Gas Prices 2013: Short-Term Drivers
There are several short-term reasons for the rise in natural gas prices.
First, there has been the unanticipated long and cold winter that finally seems to be ending in most parts of the country. That led to higher natural gas usage.
Secondly, the number of rigs drilling for natural gas in the United States fell to near a 14-year low last month. The present rig count, according to Baker Hughes Inc. (NYSE: BHI), is roughly one-quarter oof the peak level set in September 2008. This restriction of new supply coming online stems directly from low prices for natural gas the last few years.
This combination took a toll on natural gas inventories. The supply of natural gas in the week ended April 19 was 5.1% below the five-year average. This is the biggest disparity from the five-year average since February 2011. It is also 32% lower than where inventories stood last year at this time, according to the U.S. Energy Information Agency.
Current market conditions led analyst Gene McGillian of Tradition Energy to tell Bloomberg News, "Until we see the weather warm significantly and we see robust injections, we are going to see prices above $4."
But the best news for investors is that natural gas prices are slated to rise in the long term, too.
5 Reasons Natural Gas Prices Are Headed Higher
Money Morning Global Energy Specialist Dr. Kent Moors has been saying for months what Grantham echoed.
In fact, Moors recently gave five reasons as to why he thinks prices are headed to $4.85-$5.15 per million BTU by the end of 2014.
And as prices rise, so can your profits – if you are invested in the right place…