ETF Spotlight: Natural Gas

February 8th at 9:35am by Tom Lydon

Exchange traded funds that track natural gas price movements are stuck in volatile back-and-forth trading and still remain one of the worst ETF sectors as wary investors weigh colder weather against the abundant supply.

U.S. Natural Gas Fund (NYSEArca: UNG) is down 17.5% year-to-date.

Weather experts forecast temperatures in the Northeast and Midwest to cool below normal levels later this week and continue into next week, reports Joe Silha for Reuters. However, most traders remain pessimistic and don’t believe that the late-winter weather can sustainably lower the inventory surplus.

“There has been some bargain buying and there is a little (cold) weather coming, but it’s February. Storage is still going to be problematic,” a New England-based trader said in the report.

This winter was the second mildest on record since 1950, slowing inventory withdrawals by 30% below the normal rate.

Nervous traders believe that diminishing demand could pressure prices below the 10-year low of $2.231 reached last week. Most analysts also project inventories to end this winter at 35% above the average levels, or near the all-time high for end-season storage set in 1983. [Is Natural Gas ETF Rally for Real?]

Despite the historically low natural gas prices, U.S. producers are still pumping out more natural gas since most of the country’s gas is produced alongside crude-oil production and more profitable liquids, reports Dan Strumpf for The Wall Street Journal. Analysts expect prices could fall even further before producers cut back on output.

According to a press release, UNG will undergo a four-for-one reverse split after the close of the markets on February 12, 2012. Consequently, share prices will quadruple in size.

  • iPath DJ-UBS Natural Gas ETN (NYSEArca: GAZ)
  • US Commodity 12 Month Natural Gas Fund LP ETF (NYSEArca: UNL): down 8.7% year-to-date
  • Teucrium Natural Gas Fund ETF (NYSEArca: NAGS): down 9.7% year-to-date

U.S. Natural Gas Fund

For more information on natural gas, visit our natural gas category.

Max Chen contributed to this article.

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.