Despite record highs and greater demand for electricity during the summer heat, natural gas futures, along with related exchange traded funds (ETFs) that track them, may begin to drop as the hot weather turns cooler. A well-supplied natural gas market could keep the price outlook rather moderate.
For a recent survey, 64% of participating analysts predicted a rise in natural gas futures; however, Biliana Pehlivanova, analyst at Barclays Capital, remarks that “a well-supplied market is keeping a lid on prices, even as temperatures, and power loads, are setting records in the densely populated Northeast this week,” writes Moming Zhou for BusinessWeek.
On July 7, the Energy Department calculated that natural gas production will increase for the year, citing that an increase onshore output will offset expected declines in offshore production. Natural gas reserves increased by 78 billion cubic feet for the week ending July 2 to 2.762 trillion. [7 Commodity ETFs to Know More About.]
Electric utilities are thinking about the future, and that future includes more natural gas and renewable energy in their power supplies, reports Joel Kirkland for The New York Times. A recent energy report stated that natural gas is becoming a viable complement to variable renewable energy resources. “In addition, natural gas can help optimize overall energy efficiency by integrating thermal and electric technologies and end-uses.” [A New Trend for Natural Gas ETFs?]
Wood Mackenzie, analyst at an energy consultancy, projected that U.S. natural gas prices will rise to a range of $6.50 to $7 per million British thermal units (MMBtu) over the next five years. Current prices have been teetering around $4 per MMBtu in the last year.
- SPDR S&P Oil & Gas Equipment & Services (NYSEArca: XES)
- First Trust ISE-Revere Natural Gas Index (NYSEArca: FCG)
- iShares Dow Jones U.S. Oil & Gas Exploration (NYSEArca: IEO)
The futures-based natural gas ETFs aren’t perched at the top of the list, which could mean that they’re already feeling the pinch. United States Natural Gas (NYSEArca: UNG) is down 10.5% in the last two weeks.
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.