Thanks to an unusually cold start to winter, natural gas prices
rose to a seven-month high last week. The drop in temperature drove
heating demand among residential and commercial consumers, pushing
natural gas prices higher (read:
Natural Gas ETF Warms up on Cool Weather
Moreover, lower storage volumes had put pressure on the supply
front, aiding natural gas prices to rise higher. The recent report
by the U.S. Energy Information Administration (EIA) reinforced the
same as the natural gas inventory level fell by 81 billion cubic
feet (bcf) for the week ended Dec 6, bringing the current inventory
tally to 3,533 bcf.
The current inventory is around 7.7% below the year-ago level and
almost 3.7% lower than the five-year average.
The Weather Outlook
However, the month-long rally in natural gas prices surprisingly
came to a halt towards the end of last week, as meteorologists
predict mild temperatures ahead, a situation which could slash
demand for natural gas.
The Christmas week weather is expected to stay normal as against
below-normal temperatures predicted earlier.
Due to this situation, natural gas futures faced weak trading
during Monday's session, with front month futures falling 1.7%.
This pushed November futures down to $4.279/mm BTU, a loss of 7.2
cents, on yesterday's trading session.
Even though the recent outlook calls for milder weather, experts
believe that the next inventory report scheduled to be out on Dec
19 might also report a drop in inventory levels. The prediction
suggests that the supply pressure might continue for a while,
relieving natural gas prices for the time being.
The EIA also forecasts that gas prices will be higher than the
year-ago level thanks to lower natural gas inventories and higher
household heating demand. The "World Energy Outlook" brought out by
EIA has a long-term bullish opinion on natural gas (read:
Natural Gas ETFs in Focus on Huge Supply Boost
IEA expects fossil fuel usage to soar in the upcoming years,
thereby dominating the market. The agency expects as much as 75% of
global energy demand by 2035 to be met by fossil fuels. Hence,
natural gas, a cheap and abundant fossil fuel, is expected to be a
ETF in Focus
The recent slump in natural gas futures prices led to a 2.7% fall
United States Natural Gas Fund
). However, analysts still have a bullish outlook on natural gas
futures as they expect stockpiles to continue depleting (see:
all the Energy ETFs here
Investors willing to build long positions in natural gas futures
via the ETF route could use this dip as a buying opportunity.
Launched in April 2007, it seeks to replicate the performance, net
of expenses, of natural gas. The ETF does not track any particular
index but tries to match its performance relative to the daily
changes in the price of natural gas future contracts.
The product is rich in AUM, with an asset base of $956.6 million
and is one of the most popular ETFs in the oil and gas space (also
The Key Differences Between Natural Gas ETFs
Freezing temperatures throughout the U.S. during the last month led
to a surge in prices of natural gas, which caused this ETF to jump
16%. Also, this ETF is up 10% in the year-to-date time frame.
Natural gas has seen some rough trading in the last two trading
sessions as the weather forecast turned to mild from cool winter
temperatures. However, if the mercury dips more than expected,
natural gas prices might continue with their short term uptrend.
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US-NATRL GAS FD (UNG): ETF Research Reports
US-12M NATL GAS (UNL): ETF Research Reports
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