Americans are huddling next to their heaters as a winter storm rages across the Northeastern seaboard, fueling natural gas exchange traded funds and pushing futures to a two-and-half year high.
The U.S. Natural Gas Fund (NYSEArca: UNG) is up 3.9% Wednesday. UNG has gained 14.4% over the past three months.
NYMEX natural gas futures jumped 5.2% Wednesday, trading around $4.66 per million British thermal units. [Indexology: Cool Cow! It’s Not All About Natural Gas BUT THE REBALANCE]
Natural gas is trading in a backwardated market where near term deliveries are higher than later dated contracts. For instance, March 2014 contracts are trading at $4.53, April 2014 contracts are trading at $4.27 and May 2014 contracts are trading at $4.24, compared to February 2014 contracts that are hovering around $4.67, according to the CME Group. [ETF Chart of the Day: Gas Up]
“You’ve got prompt tightness because of the cold weather and that’s why it’s backwardated,” Amrita Sen, chief oil market strategist at Energy Aspects Ltd., said in a Bloomberg article.
Backwardated markets help futures-backed ETFs because the ETFs would profit as they roll front-month contracts. ETFs roll or sell the contracts that are set to expire and buy into a later dated contract.
The Northeast is weathering an Artic blast that has dumped over a foot of snow and pushed temperatures to record lows, forcing Americans to turn up the heat and burn higher-than-normal amounts of natural gas, reports Brett Philbin for the Wall Street Journal.
About half of all U.S. households utilize natural gas as the primary heating source.
Due to the prolonged cold weather, utilities used a record 287 billion cubic feet of natural gas from storage in the week ended Jan. 10. Natural gas storage is at 2.53 trillion cubic feet, or 15% below the five-year average for the same period.
The equity-based First Trust ISE-Revere Natural Gas Index Fund (NYSEArca: FCG) also strengthened, rising 2.1% Tuesday. FCG is up 21.2% over the past year. The ETF has been trading in relatively sideways action over the last three months, but the fund is trying to break out of range after a recent 3.4% bump over the past week.
U.S. Natural Gas Fund
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.