Natural gas exchange traded funds have been burning hotter over the past week and saw a slight jump Thursday on lower-than-expected inventory levels.
The United States Natural Gas Fund (NYSEArca: UNG) gained 2.3% in mid-day trading Thursday. UNG has gained 2.8% over the past week, but the fund is still down 6.4% year-to-date. [Natural Gas ETF Snapback Rally May Be Start of Something Bigger]
Natural gas futures were 2.1% higher Thursday, trading around $3.41 per million British thermal units.
The Energy Information Administration revealed that natural gas supplies only increased 65 billion cubic feet in the week ended Aug. 9, whereas most analysts and traders expected an average increase of around 71 bcf, reports Brett Philbin for the Wall Street Journal.
Natural gas inventories, though, remain 20 bcf higher for the same week year-over-year, according to Investing.com.
Total inventories was hovering around 3 trillion cubic feet as ot last week, with stock levels 252 bcf lower year-over-year but 43 bcf above its 5-year average for the same period.
The cooler-than-expected summer weather has weighed on gas-fired electricity demand for air conditioners. Nevertheless, the cheap natural gas has pushed utilities to switch from coal to natural gas.
“You’re seeing more fuel switching away from coal, helping [natural gas] to pick up some demand,” Phil Flynn, an analyst at Price Futures Group said in the WSJ article.
Looking ahead, updated weather forecasting models suggest warmer-than-normal temperatures in the northern U.S. in late August, which could help boost demand.
Additionally, the National Hurricane Center warns that stormy weather in the Caribbean could develop into tropical cyclones over the Gulf.
“We already priced in the cooler weather, so the market may be putting a bit of hurricane premium into prices,” Flynn added.
United States Natural Gas Fund
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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.