Are Inverse & Leveraged Natural Gas ETFs About To Skyrocket?

Natural gas prices and commodity-related exchange traded funds plunged Monday after meteorologists forecasted above-average temperatures this autumn season, diminishing the demand outlook for heating.

On Monday, the United States Natural Gas Fund (NYSEArca: UNG) fell 5.3% and the iPath Bloomberg Natural Gas Subindex Total Return ETN (NYSEArca: GAZ) plummeted 11.1%, extending their losses ahead of the winter season. Year-to-date, UNG declined 28.8% and GAZ decreased 59.7%.

Meanwhile, Nymex natural gas futures plunged 8.5% to $2.09 per million British thermal units Monday, trading near their lowest intra-day level since June 2012 and moving toward their largest daily dip since August.

MDA Weather Services projected “significant warm trends” across much of the U.S. in the next two weeks, reports Nicole Friedman for the Wall Street Journal.

“The main driver for the new round of selling has been the latest…temperature forecasts, which are now projecting above-normal temperatures across most of the U.S. into the second week of November,” Dominick Chirichella, analyst at the Energy Management Institute, said. “The new warming trend will mitigate most heating-related demand for the next several weeks.”

Cold weather triggers greater demand for natural gas, which is used as the main source of heating fuel for about half of all U.S. households. The heating season from November through March is the peak period for natural gas demand.

Some analysts also anticipate the strengthening El Niño weather phenomenon, which tends to heat up the Pacific water temperatures, will cause a mild winter across the U.S. and sap heating demand this season.

“Mild weather forecasts for early winter will add stress to already-surplus storage levels,” Morgan Stanley said.