A harsh winter build up across Eurasia could be a harbinger of frigid conditions ahead for North America, fueling gains in natural gas and related exchange traded funds despite record supply from the U.S. shale oil boom.
Natural gas prices, along with related ETFs, are heading for an eight-session positive streak, tying for the longest rally in over eight years, reports Timothy Puko for the Wall Street Journal.
The United States Natural Gas Fund (NYSEArca: UNG) was up 2.3% Thursday while iPath Dow Jones-UBS Natural Gas Total Return Sub-Index ETN (NYSEArca: GAZ) was 1.2% higher. Since the October 27 low, UNG has surged 19.1% and GAZ has jumped 23.6%.
Meanwhile, the VelocityShares 3x Long Natural Gas ETN (NYSEArca: UGAZ), which tries to reflect the three times leveraged or 300% performance of natgas futures, increased 8.8% Thursday while the ProShares Ultra Bloomberg Natural Gas (NYSEArca: BOIL), which takes the two times or 200% daily performance of natural gas, rose 5.3%. Since the Oct. 27 low, UGAZ is up 66.9% and BOIL is 39.4% higher.
Some observers argue that the amount of snow covering Eurasia in October could indicate how much icy air will blow down from the Arctic to North America in December and January. [Frigid Winter Warning Signals Could Heat Up Natural Gas ETFs]
As of the end of October, about 14.1 million square kilometers of snow covered Siberia, the second most on record going back to 1967, reports Brian Sullivan for Bloomberg. In comparison, about 12.9 million square kilometers covered Eurasia for the same month last year.
Judah Cohen, director of seasonal forecasting at Atmospheric and Environmental Research, argues that the greater snow coverage signals a higher chance of another Arctic Vortex conditions to sweep into more temperate regions of North America, similar to what happened last winter.
“A rapid advance of Eurasian snow cover during the month of October favors that the upcoming winter will be cold across the Northern Hemisphere,” Cohen said in the Bloomberg article. “This past October the signal was quite robust.”
The energy market has taken notice, anticipating colder weather ahead and raising prices on heating fuel, despite a large supply injection. According to Citigroup, the number of heating degree days, or how often consumers need to use gas heat, will likely be 20% higher this November than the previous month’s 10-year average. [Natty’s Plunge Hits This ETF]
Last week, natgas producers added 91 billion cubic feet to stockpiles, or 5 bcf more than anticipated and more than double the typical addition for this time of the year, according to the U.S. Energy Information Administration.
NYMEX natural gas futures were up 1.8% Thursday, trading around $4.27 per million British thermal units.
United States Natural Gas Fund
For more information on the natural gas market, 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.