The United States Natural Gas Fund (NYSEArca: UNG) and the iPath Bloomberg Natural Gas Subindex Total Return ETN (NYSEArca: GAZ) along with other natural gas-related exchange traded products have participated in this year’s commodities rebound and those products could gain some more momentum as summer temperatures rise.
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. That scenario seems to be arriving, which could boost UNG and GAZ in the near-term.
Fueling the spike in natural gas prices, WSI Corp. said that weather outlooks called for “another round of elevated heating and humidity across the eastern U.S.” in the next six to 10 days, reports Nicole Friedman for the Wall Street Journal. Commodity Weather Group also expects hotter-than-anticipated weather for the following five days.
Consequently, traders are anticipating the sweltering heat could raise natural-gas consumption as households and offices use more gas-powered electricity to run air-conditioning units.[related_stories]
“This ‘heatwave’ should produce increased electricity demand used for cooling, which in turn should boost the demand for Natural Gas, as it is the preferred fuel for many power producers. On top of the looming heat wave, we are entering the peak of the Atlantic Hurricane season, and the National Hurricane Center is currently monitoring two named storms out in the Atlantic in what is expected to be an active storm season,” according to OptionsExpress.
Traders looking to buck the trend can utilize inverse or bearish ETF options to hedge bets in the coming months. 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.
“Prices have rebounded above the 20-day moving average, and we are starting to see trading volume increase as prices move higher. The 14-day RSI has turned neutral, with a current reading of 57.87. The high made on July 29 at 2.947 looks to be the next resistance level for the October futures, with support seen at the August 12 low at 2.580,” adds OptionsExpress.
For more information on the natgas market, visit our natural gas category.
United States Natural Gas Fund