To play this move, I’m adding US Natural Gas Fund (NYSE: UNG) to the aggressive growth Gushers Portfolio. Buy US Natural Gas Fund under USD16; set a stop-loss at USD12.35 to protect your downside.

Sentiment on natural gas remains almost uniformly bearish, as this market has been inundated with negative news for weeks. US natural gas in storage remains at bloated levels; since the end of winter heating season, gas inventories have been building at an unusually strong pace.  

The late summer and early fall months are known as injection season for natural gas. This is a period when the US produces more gas than it consumes, placing the excess gas into storage. Injection season ends in November, and by that time most analysts believe US gas in storage will have reached its physical maximum levels. In other words, there just isn’t enough storage capacity in the country to accommodate any more gas.

To make matters worse for gas, most weather forecasters are projecting this summer to be relatively mild, meaning electricity demand for cooling will be lower than average. And forecasters are also predicting an average Atlantic hurricane season; that makes it less likely we’ll see severe supply disruptions on the scale we witnessed last summer.

But these bearish arguments are well known, well understood and widely expected. Markets are discounting mechanism, so these negatives are already reflected in the price of natural gas.

At the same time, there are plenty of potentially bullish catalysts that the market has totally ignored. Chief among those, as I explained in the May 20 TES, the US gas-directed rig count has collapsed at a pace and magnitude that’s unprecedented. It took several months for producers to hook up wells drilled during the drilling boom last year. But most producers believe the falling rig count will begin to have a profound effect on US production as we move through summer.

In addition, US gas demand remains depressed primarily because industrial consumption of gas has collapsed. Industrial demand is leveraged to the economy, and it does appear the US economic picture is improving. As I highlighted in last week’s issue of Personal Finance Weekly, the Conference Board’s Leading Economic Index (LEI) saw its largest monthly jump since 2005 in April.

On a shorter-term basis, today’s action in the gas market is instructive. The Energy Information Administration (EIA) released its weekly storage report showing a build of 106 billion cubic feet (bcf), slightly below expectations for a 110 bcf build. But builds of more than 100 bcf are considered large, and 106 bcf is still far above what would be considered average for this time of year.

In other words, today’s natural gas storage report was bearish. However, in response to this release, natural gas prices soared. Whenever I see a market react positively to “bad” news, I sit up and take notice. This is the clearest sign you’ll find that all the bad news is priced into the gas market and there just aren’t any sellers out there to push gas prices lower.

US Natural Gas Fund is an exchange traded fund (ETF) that tracks the price of natural gas. If I’m right about gas prices this year, this ETF could double in price by early 2010.

Kazatomprom and Uranium One

Shares in Uranium Field Bet pick Uranium One (Toronto: UUU) were hit yesterday afternoon after Kazakhstan announced it was sacking several high-level executives at Kazatomprom, the Kazakh state-owned national uranium company.

In addition, the government is investigating Kazatomprom’s past sales of uranium reserves to foreign buyers. This includes the sale of a 30 percent stake in the country’s large Khorasan mine. Kazatomprom sold this stake to UrAsia Energy, a firm that was subsequently acquired by Uranium One.

Uranium One has stated that it believes it followed Kazakh law and paid a fair price for this stake. It also received the appropriate approvals from Kazakh courts and competition authorities. Of course, the government could decide otherwise as a result of its investigations.

This is not good news for Uranium One, and the announcement introduces exactly the sort of uncertainty all investors loathe. However, yesterday’s selloff was a vast overreaction.

First, the investigation appears to concern only one of Uranium One’s mines, not all of its Kazakh assets. And, more importantly, I doubt the Kazakh government will want to be too harsh on foreign investors, as these same investors are providing most of the capital needed to develop these expensive mines.

And Uranium One isn’t the only foreign investor in Kazakhstan. If the government deals it a hard blow, it’s likely other foreign investors would be more reluctant to invest capital in uranium mines in the country. Because Kazakhstan is a key global uranium producer, an aggressive move by the government would spell lower uranium production. This could be a catalyst for another leg higher in yellowcake.

Uranium One has rallied significantly since the beginning of this year, even after factoring in yesterday’s drop. Moreover, given the upside in the stock today, it appears the panic-driven selling late yesterday has abated. I’m maintinaing my buy recommendation on Uranium One for now and will offer further updates as more information comes to light.

This incident highlights yet again why I play uranium mining stocks via a field bet. Volatility and small mining stocks go hand in hand, so you always want to hedge your positions by keeping individual position sizes small and investing in number of these plays.