U.S. Natural Gas Fund (NYSEArca: UNG) was launched in April 2007 and has lost money in every calendar year since then as the commodity’s price has stayed depressed on a supply glut.
However, 2013 could finally be the year that UNG and other natural gas ETFs end the rut. UNG capped a two-day rally with a gain of more than 4% on Friday.
Natural gas exchange traded funds could be moving past their bottom after a four year bear market in gas. Still, supply side strength could keep natural gas futures from breaking out.
On Wednesday, the Energy Department stated that weekly average output jumped to 7 million barrels a day in the week ended Jan. 4, a 20-year high and 1.16 million higher for the same week last year, reports Asjylyn Loder for Bloomberg.
Nevertheless, the long-term natural gas trend has been bearish, and more observers believe in a turnaround.
“We are hearing from various classes of investors that they are considering re-weighting gas in their portfolio allocation mix because 2012 may indeed have marked a price bottom,” Sal Gilbertie, president and co-founder of Teucrium, said in an interview.
According to the U.S. Energy Information Administration, the average price of natural gas is projected to rise almost a dollar in 2013 to $3.74 per million British thermal units, compared to the $2.75 average last year, reports Eric Schwartzel for Pipeline. Natural gas futures were trading at around $3.11/MMBtu Wednesday.
Gilbertie points out that the Baker Huges dry gas – wells dedicated to natural gas exploration – rig count is at a 13-year low after the low natural gas prices forced drillers to cut back. Moreover, Marcellus Shale Drillers have also cut costs and disassembled rigs due to the record low prices. [Natural Gas ETF Falls Below 200-Day Trend for First Time in Three Months]
Nevertheless, “natural gas production is rising even though dry gas rig counts are falling,” Gilbertie said. “This is due to the fact that ‘incidental’ gas production occurs with dedicated gas liquids and crude oil wells, as well as with shale and oil sands oil production.”
“Simply stated, there still seems to be plenty of supply even though demand is rising and dedicated drilling efforts for gas (as reflected in the Baker Hughes rig counts) is falling,” Gilbertie added.
In the short-term, generally mild temperatures have contributed to the recent drop in prices. The U.S. National Weather Service forecasted above-normal temperatures for most of the eastern third of the U.S. over a ten-day period, Commodities News reports. [ETF Chart of the Day: Natural Gas Fracking]
U.S. natural gas storage has been relatively flat, sitting around 0.7% higher than last year’s level. Still, natural gas inventories is 12.4% above its five-year average for this time of the year.
Natural gas futures-based ETFs include:
- United States Natural Gas Fund (NYSEArca: UNG)
- United States 12 Month Natural Gas Fund (NYSEArca: UNL)
- Teucrium Natural Gas Fund (NYSEArca: NAGS)
United States 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.