Natural gas, unlike other energy commodities, is at a 20-year low because the commodity is hard to ship out to developing markets that need it, writes Kenneth D. Worth for Seeking Alpha. Consequently, prices rely on supply and demand dynamics within North America.
Over the past four years, natural gas prices have plunged from $14 per million British thermal units to under $2.
Worth predicts that with prices at their current levels, new hydraulic fracturing techniques, or “fracking,” in shale beds may become increasingly unsustainable. Prices may have to come back to $8 to $10 before fracking operations become profitable again.
Now, with natural gas prices at what appears to be a bottom, the only direction left is up, Worth notes.
UNG has been on a 97% losing streak over the past four years as contango ate away at the ETF. If the natural gas outlook is more positive, we might return to a favorable backwardated market, where the fund would roll to cheaper front-month contracts at a profit.
United States Natural Gas Fund
For more information on natural gas, visit our natural gas category.
Max Chen contributed to this article.