Previously downtrodden natural gas exchange traded funds, such as the United States Natural Gas Fund (NYSEArca: UNG), are taking part in the commodities rebound. UNG jumped 5.3% last week, bringing its one-month gain to 10.6%.
More impressive is the fact that UNG is up 20% over the past three weeks after languishing amid abundant supplies and extreme pessimism. Natural gas is one of the most volatile members of the already volatile commodities complex and that much has been proven by UNG moving from bear market to bull market territory in less than a month.
“Natural-gas futures went from a three-year low to bull-market territory in just three weeks. That has upended a lot of bets. The number of wagers on natural-gas prices falling has been hovering around the highest levels in four year,” reports Tim Puko for the Wall Street Journal.
UNG’s recent surge has led to some significant moves for its leveraged counterparts. For example, the ProShares Ultra Bloomberg Natural Gas (NYSEArca: BOIL), which takes the two times or 200% daily performance of natural gas, is up 20.5% over the past month. BOIL will be reverse split on a 1-for-4 basis after the close of U.S. markets on May 19. [ProShares Splits Coming]
The VelocityShares 3x Long Natural Gas ETN (NYSEArca: UGAZ) has surged more than 30% over the past month. Natural gas exchange traded products still face fundamental headwinds, particularly on the demand side.
Natural gas consumption is expected to increase for power consumption as gas generators replace old and dirtier coal-fired plants. However, plants could switch between gas and coal depending on price gains, which should keep a cap on gas prices. The switch to alternative and clean energy sources could also keep natural gas demand in check.
Furthermore, the U.S. could begin exporting excess natural gas to foreign markets, notably in Mexico where the country is constructing gas generators to meet rising electricity needs and faces limited additions to its gas production. [Tough run for Nat Gas ETFs]
“Producers are likely to have 3.9 trillion cubic feet in storage before November, and the 2.4 trillion cubic feet they’re likely to add to stockpiles this year would be the second-highest addition on record, the U.S. Energy Information Administration said Tuesday,” according to the Journal.
Equity-based natural gas ETFs have not participated in the commodity’s upside. Over the past month, the First Trust ISE-Revere Natural Gas Index Fund (NYSEArca: FCG), which is comprised of natural gas exploration and production companies, is off more than 8%. FCG’s triple-leveraged equivalent, the Direxion Daily Natural Gas Related Bull 3X (NYSEArca: GASL) is off more than 24% over that time. GASL will be reverse split 1-for-10 after the close of markets on May 19.
United States Natural Gas Fund
ETF Trends editorial team contributed to this post.
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.