Will natural gas make a comeback? The odds are pretty good that bargain-hunters at this distressed price will probably double their money over the next 6-12 months ahead of rising industrial demand and the possibility of supply outages caused by the looming Hurricane season. Also, demand typically rises during the summer as individuals turn up the air conditioning.

The best risk-adjusted speculation now for commodities investors is natural gas. There’s no other commodity that’s this cheap, this battered and this oversold (see chart below).

From its high last year ahead of the peak in raw materials in July, spot natural gas prices have now collapsed a cumulative 74%; in 2009 prices have declined 37%. Crude oil, on the other hand, driven higher by big supply cuts by OPEC and Russia earlier this year, has seen prices rise 19% to $53 a barrel. Yet even oil is down 64% from its high.



Over the last several months natural gas has been hammered as the global economy suffers its worst recession since 1981-82 coupled with soaring gas inventories. Though an extremely volatile commodity, natural gas at these levels has historically been a strong speculation following big bear market crashes.

Canada is home to some of the best natural gas companies, including Encana (NYSE-ECA). The stock is more than 50% below its all-time high and pays a 3.6% annual dividend at current prices. The Canadian dollar has also rallied sharply since April and provides a far safer refuge for U.S. dollar-based investors because Canada’s financial system is not heavily leveraged nor has a single bank received a government bailout.

It’s time to ride natural gas. At just $3.55 BTUs (British Therman Units) it’s hard to believe prices can head much lower. All the bad news is already baked into gas prices. It’s my favorite energy play right now in Commodity Trend Alert (CTA) -- celebrating its 7th year this summer.