The United States Natural Gas Fund (NYSEArca: UNG) and the iPath Bloomberg Natural Gas Subindex Total Return ETN (NYSEArca: GAZ) have been among the better performing commodities exchange traded products in recent weeks, but some commodities market observers see the recent upside in natural gas as defying current fundamentals.
Gas prices previously hit an 18-year low after tepid winter demand. Natgas also typically hits a seasonal low with spring’s mild temperatures before warmer weather raises demand in gas-fired electricity generation for air conditioning.
On the supply side, observers anticipate output to dip from near-record levels as the low prices force producers to shut down rigs and slow their work. The supply outlook is already diminishing as the number of working rigs has recently dropped to historic lows.
According to the most recent Commitment of traders report, non-reportable traders added a whopping 11,262 new net-long positions during the reporting period ending on June 14. This brings the small speculative position to a net-long 39,233. The non-commercials were still covering part of the overall net-short position, cutting the size by 2,400 contracts last week. Commercial market participants used the recent rally to reduce the overall net-long position by 13,661 contracts to stand at a net-long 112,947 contracts,” according to OptionsExpress.[related_stories]
According to the U.S. Climate Prediction Center, the U.S. Northeast, West Coast and Great Lakes region have the highest chance for warmer-than-normal temperatures from June through August while most of the rest of the U.S. also has an elevated chance for a hot season, reports Brian K. Sullivan for Bloomberg.
A hot summer in large cities across the Northeast and Midwest will drive up energy demand as Americans crank up air conditioners, which typically means more natural gas being burned to power the electricity plants.
Weekly Gas storage builds have been generally running below average recently, the total amount of Gas in storage remains ample, with just over 3.10 trillion cubic feet of Gas currently in storage, which is 28% above the 5-year average for this time of year. In addition, a weekly report by Baker Hughes has the Natural Gas rig count increasing by 3 to 85 as of June 10, with Oil rigs increasing by the same amount. This could spell increasing supplies of both Gas and Oil in the coming weeks, which could help to offset any increases in demand,” adds OptionsExpress.
For more information on the Natgas market, visit our natural gas category.
United States Natural Gas Fund
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.