NEW YORK (TheStreet) -- I was talking to Jill Malandrino today about the crazy natural gas trade and what to expect from it in the near future. In the last week, natural gas has traded much like it did back in the day when I was trading it on the floor of the New York Mercantile Exchange in the mid-2000s. On Monday we saw a move of more than 6%.
Much of this volatility has been obviously related to the tundra-like conditions we've been seeing throughout the United States, but particularly here in the Northeast. But each new frigid blast of cold temps has brought with it another important catalyst to the volatility of the "nat gas" trade: day traders.
Big moves inspire day traders looking to make quick money, but in most cases it has resulted in bigger losses than gains -- the move of nat gas futures two weeks ago above $5.60/mcf was only possible because so many traders were stuck short going into the expiration of the February contract. Similarly, you just do not get a 35-cent move down in the futures market in one day, as you did on Monday, unless you've got a lot of day traders long the futures looking for a quick rise because of cold forecasts.
So we know that much of the volatility is trader-driven, but that doesn't mean there aren't fundamentals to help us guide a more long-term view. There are strong reasons to believe that Nat gas is now more sustainable above $4.50/mcf for the long haul: Sequestration and cold temps have dropped stockpiles, domestic exploration and production (E&P) companies continue to forsake nat gas production for natural gas liquids (NGL) and shale crude and deals for liquified natural gas (LNG) exports that are supporting new LNG terminals are being inked.