Amid Warm Weather, Where Will Natural Gas Go?

As balmy temperatures across the United States have damped December demand for heating oil and natural gas, one “Fast Money” analyst looked at what lies ahead.

“We’re very bearish on natural gas for all of 2012 and expect that it will be trading below $3 here very soon,” Tradition Energy analyst Addison Armstrong said Friday.

Natural gas inventories are 12 percent above normal, and they are expected to continue to grow into January, he said.

Armstrong said the latest government data shows that heating oil inventories are 16 percent below normal for this time of year and are at their lowest level for the week in at least the past six years.

Weather forecasts for early 2012 suggest continued warmer weather, but once temperatures plummet, heating oil prices will rally sharply, he said.

Commodities trader Dan Dicker said he would like to see “a little more excitement about the drilling of natural gas” to spur investment in the sector.

“That will drive the money into the natural gas space and make the trade a whole lot better, not just for natural gas itself but for the stocks around it,” he said. “If you wanted to make a big move in some space, you’re looking for natural gas to get exciting because those stocks have just been hammered and can really move up a big deal in 2012.”

Trader Steve Grasso again noted that Libya’s oil production was ramping up and suggested bargain-hunting in the entire space.

“It’s probably about six months away for nat gas to be a play on the buy side,” he said.

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• After Major Breakdown, Don't Hold Commodities Long-Term
• How to Play Natural Gas Stocks

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Trader disclosure: On Dec. 23, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders: Weiss owns WLP; Weiss owns EUO; Weiss owns NIHD; Dicker owns CHK; Grasso owns ASTM; Grasso owns AVAV; Grasso owns BA; Grasso owns D; Grasso owns LIT; Grasso owns MHY; Grasso owns PFE; Grasso owns PRST; Grasso owns S; Grasso owns XLU; Najarian is long; Najarian is long MOS call spreads; Najarian is long AAPL call spreads; Najarian is long HSBC call spreads; Najarian is long VMW call spreads; Najarian is long CHS call spreads; Najarian is long RMBS call spreads; Najarian is long Long CIGX; Najarian is long CBOE; Najarian is long CME

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