Spring is quickly upon us, and natural gas exchange traded fund traders are already anticipating warmer weather and lower heating demand ahead.
On Monday, the United States Natural Gas Fund (NYSEArca: UNG) declined 6.8% and the iPath Bloomberg Natural Gas Subindex Total Return ETN (NYSEArca: GAZ) dropped 5.6%.
Nymex natural gas futures decreased 6.3% Monday to $2.15 per million British thermal units.
Meanwhile, inverse natural gas ETFs that capitalize off weakness in the commodity surged. For instance, the VelocityShares Daily 3x Inverse Natural Gas ETN (NYSEArca: DGAZ) seeks to provide the daily inverse 3x, or -300%, performance of the NYMEX natural gas futures. The ProShares UltraShort Bloomberg Natural Gas (NYSEArca: KOLD) provides the daily inverse 2x, or -200%, performance. On Monday, DGAZ jumped 20.4% and KOLD advanced 13.6%.
Natural gas prices took their biggest hit in a month on forecasts for mostly average or above-normal temperatures in central U.S. from February 11 through February 15, reports Christine Buurma for Bloomberg.
According to Thomson Reuters analytics, February is expected to be about 9% warmer than normal and March is expected to be 19% warmer than normal.
“Whatever hopes there were for cold weather to kick off February have dissipated,” John Kilduff, a partner at Again Capital LLC, told Bloomberg. “It’s a real worry at this point that we’re not going to get any more significant heating demand.”
In the absence of cold weather propping up heating demand, the natural gas surplus will keep pressure on prices, especially as production from the booming shale oil industry continues to augment supplies.
Looking ahead, some energy observers argue that natural gas prices could retreat below the $2 level. For instance, Beth Sewell, managing partner at Quantum Power & Gas Services, believes natural gas could dip to $1.5 as the market enters the “spring shoulder period” – the transition period when heating demand drops and demand for fuel has yet to rise on summer cooling, reports Myra P. Saefong for MarketWatch.
Natgas production, which hit a fifth consecutive annual record last year, continues to rise, despite the rig count dipping to its lowest ever. The U.S. Energy Information Administration revealed bigger-than-expected 211 billion cubic-foot drop in natural gas inventories for the week ended January 22, but total inventories were at 3.086 trillion cubic feet or 432 billion cubic feet above the five-year average.
“Despite very low prices for natgas, U.S. shale gas production remains more than capable of overtaking demand, leading to more and more rounds of surpluses,” in the long term, Richard Hastings, macro strategist at Seaport Global Securities, told MarketWatch.
United States Natural Gas Fund
Max Chen contributed to this article.