Natural gas exchange traded funds are burning up, with gas futures breaking to a three-and-a-half year high, as the winter freeze keeps demand for heating fuel hot.
The U.S. Natural Gas Fund (NYSEArca: UNG) jumped 7.2% Friday. The ETF is up 10.3% so far this year.
NYMEX natural gas futures also gained 7.2% Friday, trading around $5.07 per million British thermal units.
Demand for natural gas for heating fuel has been rising in recent weeks as households in the Midwest and East Coast try to stave off the winter chill. U.S. inventories declined to 2.423 trillion cubic feet as of Jan. 17, or 13% below its 4-year average for the period, reports Nicole Friedman for the Wall Street Journal.
According to the Energy Information Administration, about half of U.S. homes utilize natural gas as their primary heating fuel.
“This cold period is just extending…further out into the future,” Matt Smith, an analyst at Schneider Electric SA, said in the article. “You’re seeing weather advisories from Canada down to the Gulf Coast, freezing conditions across virtually the entire U.S.”
Weather forecaster WSI Corp points to weather models predicting an “extreme spell of cold weather” in the eastern U.S. early next week before another Arctic blast in the next 11 to 15 days.
On the supply side, the abnormally cold weather has caused production to slow – a type of “freeze-off” can cause liquid to freeze inside pipes at wellheads, limiting a pipe’s capacity. Ryan Smith, energy analyst at analytics firm Bentek Energy, said production was 1.8 billion cubic feet a day lower Thursday than it was Monday.