Natural gas has a lot of factors in favor of the success of this commodity; the related exchange traded funds(ETFs) have made it easier to access it.Natural gas could someday be a hot commodity, especially since it can act as a hedge against the de-valuation of the U.S. dollar, not to mention its appeal as we increasingly go green. Gary Gordon for ETF Expert explains that this clean energy alternative is valued around the globe, and it tends to go up when oil goes way up.

However, Gordon notes that United States Natural Gas (UNG) has been the laggard among commodity ETFs, down 38.8% year-to-date. Most other funds are positive for the year.

Last year, UNG was moving in tandem with First Trust Natural Gas (FCG), an ETF of companies that derive revenue from the exploration and production of natural gas. This year, not so much: FCG is up 23.9%. What gives? Gordon posits that either UNG and natural gas will eventually pick up, or the companies in FCG could begin to hurt.

Bespoke Investment says that getting excited about natural gas is hard, as its inventories are up 22% above their five-year average. Keep in mind that while the fundamentals aren’t necessarily attractive, the historical relationship between the price of natural gas and oil is nearing record extremes.

Eventually natural gas outperforms oil, the trick is to wait for their ratio of natural gas prices to oil prices s to fall around 18, Bespoke notes.

Watch the trend lines to see what develops in this area. It could get interesting.

  • United States Natural Gas (UNG): down 38.8% year-to-date
  • First Trust Natural Gas Fund (FCG): up 23.9% year-to-date

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.