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Natural Gas ETFs Could be in a Cruel Summer

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Conventional wisdom dictates that as temperatures rise, so should natural gas prices . However, exchange traded products such as the United States Natural Gas Fund (NYSEArca: UNG ) and the iPath Bloomberg Natural Gas Subindex Total Return ETN (NYSEArca: GAZ ) could face seasonal challenges.

Earlier this week, the U.S. Energy Department revealed natural gas stockpiles only increased 65 billion cubic feet in the week ended June 3, compared to expectations for a 79 bcf gain, reports Christian Berthelsen for the Wall Street Journal.

Related: Natural Gas ETFs Heat Up on Warming Weather

"Market sentiment seemed to have turned once again in recent weeks on the prospect of a hot summer combined with shrinking supply. The prolific shale basins - most notably the Marcellus Shale - have seen output start to decline as both low oil and low gas prices continue to scare away drillers. The slightly more bullish market allowed Henry Hub spot natural gas prices to rise above $2.60/MMBtu, a sharp rise of more than 40 percent in just the past month alone," reports OilPrice.com.

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Gas prices previously hit an 18-year low after tepid winter demand. Natgas also typically hits a seasonal low with spring's mild temperatures before warmer weather raises demand in gas-fired electricity generation for air conditioning.

Related: 32 Best ETFs to Track Crude Oil

NatGasWeather.com, though, anticipates demand to remain low in the next 15 days due to mild weather conditions that diminish the need for indoor heating or cooling.

On the supply side, observers anticipate output to dip from near-record levels as the low prices force producers to shut down rigs and slow their work. The supply outlook is already diminishing as the number of working rigs has recently dropped to historic lows - Ritterbusch and others, though, have warned that the lower rig counts have yet to translate to lower production.

Still, investors should be careful with natural gas in the near-term following the group's recent rally.

"In fact, the impressive price rally itself tends to decrease the chances of further gains. Higher natural gas prices have a way of eating into demand - as natural gas prices rise, utilities can lean harder on their coal-fired power plants, paring back gas generation. That could cut into demand for gas, putting a cap on the latest price rally," according to OilPrice.com.

For more information on the natgas market, visit our natural gas category .

United States Natural Gas Fund

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article was provided by our partner Tom Lydon of etftrends.com.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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