The current world order revolves around energy for economic growth and is experiencing immense turmoil due to the extreme price dynamics of the energy market. Adding fuel to the fire is the current status of conventional fossil fuels such as Natural Gas which act as the backbone of today’s thriving economy. But are facing massive criticism from several organizations and individuals advocating for a greener future.
Natural gas: a perfect candidate for transition fuel
Amidst this growing concern about climate change and an inclination towards sustainable development, NG is emerging as a transition fuel. This is because NG is a relatively clean-burning fossil fuel, emitting fewer greenhouse gases and air pollutants compared to others.
These advantages of NG over other conventional fossil fuels make it the perfect candidate for power generation. It can help to reduce carbon emissions and improve air quality.
Besides being an eco-friendly fossil fuel, it’s a versatile energy source adaptable for various applications. It serves as an energy source in power plants, fuels transportation, and supports chemical and industrial production.
Natural gas contract: amongst the most volatile and liquid contracts in the Indian market
Due to its abundance and affordability, along with numerous benefits, it remains a highly traded commodity in Indian markets.
The commodity garnered significant attention from traders due to extreme volatility caused by the Russia-Ukraine conflict.
Factors need to be considered by Natural gas traders
Due to the highly volatile nature of NG, participants need to keep certain factors in their mind before diving in. Before commencing trades in the NG market, consider key factors influencing price movement for informed decisions.
These factors and their responses are mentioned below:
- Demand: Since NG acts as a raw material for growth, the demand for NG grows with the growth of the global economy. If demand for NG increases, prices will likely rise.
- Dependence on the weather: The use ofnatural gas for heating and electricity generation purposes is responsible for its dependence on the weather. Cold weather can drive up demand for natural gas as it is used for heating. On the other hand, hot weather can drive up demand for natural gas as it is used for electricity generation.
- Production: If disruptions occur in natural gas production like the one that happened during the Russia-Ukraine war, the prices may rise exponentially as the supply is reduced.
- Inventory levels: Low inventory levels of natural gas can push prices higher as it indicates a tight supply scenario.
All these price dynamics attract traders’ interest making natural gas one of the most popular contracts in the Indian commodity market. Investors engage in NG trading through futures and options, capitalizing on its high market volatility and trading volume
Word of caution: It’s important to note that the natural gas market is subject to significant volatility and price fluctuation and hence a strong risk management approach should be a part of the trading strategy.
Also, Check Unveiling the Path to Long-Term Investing: Key Factors That Drive Success.