Natural gas is a very interesting commodity to watch. That's because demand for natural gas is based on supply and demand, but heavily correlated with the value of oil. Recently, the United States made a deal with Iran with regard to nuclear capabilities; ultimately this will lead to lifted sanctions and a flood of Iranian oil on world markets. While this is sure to affect the value of oil, that topic has been discussed just about everywhere. However, most analysts seem to be skipping over the event's affect on the value of natural gas. Today, we'll talk about how the Iranian nuclear deal is likely to affect natural gas and what you can do to take advantage of the trends.
Understanding Demand For Natural Gas
Natural gas is the step child of the energy industry so to speak. While it's an integral part of the energy, it's simply not building the demand that many have expected to see. That's because demand for natural gas is heavily reliant on two major factors…
Growing Concern Over Global Warming – Oil is a major topic among those discussing global warming; and as concern grows, there has been a big push among the community to move to natural gas where possible as natural gas is considered to be the cleaner energy source. However, believe it or not, this only plays a very small role in demand. A bigger factor in the demand for natural gas is the value of oil.
Oil Prices – The bigger reason there has been a big push for natural gas has been the value of oil. In 2014 and several years before, the value of oil skyrocketed. As a result, natural gas became a much more appealing option. However, in late 2014, the value of oil declined drastically and it has traded low since as the result of a supply glut. Ultimately, low oil prices increase demand for oil and reduce demand for natural gas.
That's Where The Iranian Nuclear Deal Comes In
The new unprecedented deal between the United States and Iran with regard to nuclear capabilities will result in sanctions being lifted from Iran. As a result, one of the world's largest producers of oil will be free to flood the market with their product. Experts are expecting this to lead to an extra 500,000 barrels of oil per day by the end of the year; and at full capacity, it will lead to an extra million barrels of oil per day. Considering that the world is already producing 2 million more barrels of oil per day than it loses, this will only add to the supply glut and push oil prices down even further.
Considering that one of the major factors in demand for natural gas is the price of oil, the nuclear deal with Iran isn't only going to drastically reduce the value of oil, it's going to cause demand for natural gas to fall as well. Ultimately, this will lead to declines in the value of natural gas over the coming months and possible throughout the next few years.
How Binary Options Traders Can Take Advantage Of The Trend
This is a classic example of data correlation; in which case, smart traders have the ability to profit from two trades at once. We know that thanks to the nuclear deal between the United States and Iran, the value of oil and natural gas are likely to decline. As a result, traders should be looking for resistance in the values of these commodities and riding the trends down with put options; effectively killing two birds with one stone!
What Do You Think?
Where do you think the value of natural gas is headed and why? Let us know in the comments below!