A new season of the year is around the corner and natural gas is coming back into investors’ minds. The coming winter may be just the force needed to help goad natural gas prices and related exchange traded fund (ETF) upward.

On Sept. 4, natural gas prices dropped to $2.409 per million BTUs, the lowest in seven years. Since then, prices have spiked 37%. What gives?

  • The low prices are luring some speculators back in, sending prices back up to $3.297, reports Reg Curren for Bloomberg.
  • Demand for natural gas usually picks up in the fall and tops out between January and February. An El Nino weather pattern may produce colder-than-expected winter this year.
  • Natural gas prices may also go up because of a drop in production as a result of declining exploration.
  • Output may drop 3.5%  in 2010, and gas rigs working in the United States dropped 56% to a total of 699 as of last week.
  • The depreciating U.S. dollar will increase demand for U.S. grains and food-products, and the higher demand for grain should increase the need for nitrogen fertilizers, which is a product of natural gas.

Traders are wary about commodity ETFs in deciding whether market trends are affected by volatility and fundamentals, or by potential regulatory actions, comments Murray Coleman for IndexUniverse.

The United States Natural Gas (NYSEArca: UNG) is planning on re-opening to new investors and trading at a more enticing premium. The firm that runs UNG, however, may change its mind if circumstances warrant it.

  • United States Natural Gas (NYSEArca: UNG): down 52.1% year-to-date

ETF UNG

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.

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