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 are often subject to seasonal trends. With winter approaching, the seasonality of natural gas could be advantage for the commodity.
However, market observers warn that natural gas demand will dip as the seasons change and temperatures cool. Some analyst are already warning of a potentially new record high natural gas inventory levels in the months ahead.
Still, natural gas may find further support as we head toward the winter months and heating demand rises.
Recent data showed natural gas storage levels revealed rose 36 billion cubic feet, compared to expectations of a 41 billion injection, a 51 billion cubic feet jump in late August and 72 billion cubic feet for the same period last year.
“UNG is bumping up against the $9 region, threatening a breakout … we should be able to move higher into this winter season,” Todd Gordon of TradingAnalysis.com told CNBC.
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.
“Investors should note that while UNG has a high correlation to the daily moves of natural gas futures, the costs of “rolling” from one futures contract to the next exact a serious toll on long-term holders of the ETF. For instance, while continually rolled natural gas futures (the most commonly viewed chart) are up 14 percent over the past year, the UNG is down 29 percent,” according to CNBC.
For more information on the natgas market, visit our natural gas category.
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.