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.