Playing the Rise in Natural Gas Prices

Natural gas prices have hit a year-to-date high this week and stand at just over $3.60/MMBtu. This is a more-than-60% move since the fuel hit its lows in the second quarter. Morgan Stanley now believes natural gas prices could hit $5/MMBtu by the first quarter of 2013. FBR Capital also just upped its forecast for natural gas prices to be $4.50/MMBtu in 2013, up from its previous forecast of $3.50/MMBtu.

The supply/demand equation has changed significantly, as production has shifted to more of an oil-and-liquids focus and large industrial users and utilities continue to switch to natural gas vs. coal. Interestingly, coal stocks were huge winners on Thursday, as investors bet than the rising price of natural gas will slow or possibly start to reverse this conversion. They might remain a decent speculative play but the uncertainty about coal as a fuel domestically and the fast-approaching presidential election is undermining their case as long-term investments right now. I would also be wary of fertilizer stocks right now, as natural gas is a primary component in their manufacturing process....426 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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