Natural gas prices and commodity-related exchange traded funds are perking up as forecasts for hotter weather ahead raise expectations for higher electricity consumption.
The United States Natural Gas Fund (NYSEArca: UNG) rose 3.5% on Monday as Nymex natural gas futures were up 3.8% to $2.68 per million British thermal units. Despite recent gains, UNG has declined 11.4% year-to-date.
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]
“Power burns are still expected to be strong this week…as the consuming centers in the Northeast and South are still experiencing hot weather,” consulting firm Energy Aspects said in a note.
Traders, though, should keep in mind that the summer is winding down and demand for fuel typically declines as the weather cools in the fall. Some analyst are already warning of a potentially new record high natural gas inventory levels in the months ahead.
“Seasonally, the market has turned a major corner,” Andy Weissman, chief executive of EBW AnalyticsGroup, said in a note. “With the heart of the summer already behind us and relatively benign weather expected for the remainder of August and September, the picture for natural gas over the next four to six weeks looks highly negative.”
If traders share a similar outlook for the fall season, one may 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.
For more information on the natgas market, visit our natural gas category.
United States Natural Gas Fund