Dennis Gartman on Natural Gas-Advice Needed!

Quote from Rodney King:

No, of course it's not "automatic" (that's your supposed insight?) but it's typical of energy markets. The near-in months are more volatile, so when there's a sharp price rise, they tend to go up more than far-out, thus backwardation.

If this weren't the case, everyone and his brother would make free money by riding the forward curve.

Re "storage is at...", yes, but that comes and goes.

Re "too many mistakes" -- enlighten me, I'm eager to learn.
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Better check your seasonals/facts over the last 15 years as this statement is not true in regards to NG this time of year. Not one year in the last 15 anyways has the fall months lead the charge over the winter months. Not once.
 
Quote from Rodney King:

Hey, aren't you the guy who told me in the summer of '87 that the stock market never goes down 20% in a day?
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No.....but if you are saying anything is possible well, I guess anything is
 
Contango is a product of storage economics. You have the capacity to store something, do you buy the cheapest price you can? (Yes you do). If July futures traded .05 over August, you would buy the cheaper August for injection, for not only the .05 better pricing, but for the time value of capital as well. So that creates a lack of demand in the summer month of July, when we have excess supply for injection, thus creating a falloff in price relative to the august. There is an operational reason that contango is granite in the summer months.

As far as what Gartman is saying, he is spot on. He is talking about natty ETF's and their structural problems dealing with contango. If you were astute enough to do a tiny bit of research, what you would find is this. Using the current price of roughly 4.875, today UNG is trading 8.25. Now let's look at past months when prompt gas was trading at roughly 4.875 and where UNG was trading:

6/21/10 $8.25
2/22/10 $9.01
12/09/09 $9.11
9/29/09 $11.77
2/9/09 $19.91

If that isn't a nasty illustration of contago effect on UNG, I don't know what is.
 
Guys, think about it for a second, why arent you all shorting UNG if its guaranteed that contango will lose you money?Sorry, no free lunch here, what happened in the past could change
Either contango or backwardation had to had a historical losing record, turns out that it was contango, keyword is WAS, who knows what will happen in the future
 
No one said contango guarantees a loss. what was said was that as the fund rolls, the front month has to make up the amount its losing just to break even. every single month.

thank you for your insight. thought provoking.
 
Quote from bt116:

No one said contango guarantees a loss. what was said was that as the fund rolls, the front month has to make up the amount its losing just to break even. every single month.
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So in theory you could go short commodities in contango and long commodities in backwardation and capture this 'no risk' premium while keeping your net commodity exposure close to 0.

Now maybe this is some kind of ETF/ speculation effect that distorts prices above their likely future price and fading can consistently win as a long the dumb money continues to plow money to these instruments but I wouldn't be as sure as some people that comment on this that this will continue
 
Thats not what I said. I think if you want me to make a blanket staement that I would stick behind, I would say that buying UNG while the underlying natural gas curve is in contango is just really dumb since you are paying to roll every month the market stays in contango.
 
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