Here's why Liquefied Natural Gas Ltd soared 12% today

Small-cap superstar Liquefied Natural Gas Ltd (ASX:LNG) has enjoyed another stellar performance today.

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Small-cap superstar Liquefied Natural Gas Ltd (ASX: LNG) (LNGL) has enjoyed another stellar performance today with the stock rising 29 cents or 12.1% to $2.69. The rally comes as the result of rebounding oil prices on Friday which saw Brent oil rise 3.6% to US$61.38 a barrel, while West Texas Intermediate jumped 4.4% to US$56.52 a barrel.

So What: It's certainly been a bumpy ride for LNGL shareholders in recent months. While the stock retains its title as the best-performing stock from the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) in 2014 – up 844% year to date – it has also dropped more than 40% since peaking at $4.49 roughly four months ago.

The plummeting oil prices have been the major cause of its heavy fall in recent months. Due to a massive oversupply in the global market, oil has lost almost 50% of its value since June this year.

Liquefied natural gas prices are usually linked to oil prices. The additional problem facing LNGL is that shale gas production carries a higher cost than conventional gas. Not only could this make shale gas uneconomical in the future, it could also make it pricier for LNGL to source gas for its proposed LNG plant. As such, investors have been heavily shorting the stock, pushing its price lower.

As the oil price rises however – as it did on Friday – investors swoop on these stocks in the hope of big turnaround gains. Should the oil prices continue to regain ground, LNGL could certainly pay off for investors. If one thing is for certain however, it's that LNGL remains a very risky bet and investors shouldn't put more on the stock than they can afford to lose.

There is a much safer way to play this "unprecedented boom"…

Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned. You can follow Ryan on Twitter @ASXvalueinvest.

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