Natural gas prices, along with the United States Natural Gas Fund (NYSEArca: UNG) could be poised to rally as cooler temperatures start setting in across the U.S. 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.
The natgas market has been closely tracking weather projections in recent weeks as traders tried to price a shifting outlook on early summer electricity demand for air conditioning.
Gas typically dips to a seasonal low during the spring’s mild temperatures before hot summer weather raises demand for gas-fired electricity generation.
Related: Natural Gas ETFs Heat Up on Warming Weather
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.
Inverse plays on natural gas include the VelocityShares Daily 3x Inverse Natural Gas ETN (NYSEArca: DGAZ), which 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.
However, being long UNG or an ETF like the iPath Bloomberg Natural Gas Subindex Total Return ETN (NYSEArca: GAZ) could be the better way to play natural gas at the moment.
“Nearly half of all U.S. households use natural gas for heating, which has sent gas futures soaring during many winters. The highest price of nearly the past eight years—$6.149 per million British thermal units—came during the polar-vortex winter of 2014, which brought record-low temperatures across much of North America. That winter, prices climbed nearly 80% from early November to the mid-February peak,” reports Timothy Puko for Barron’s.
SEE MORE: Natural Gas ETFs Surge on Smallest Inventory Injection in a Decade
Historical seasonal trends indicate that over the past two decades, October is the second-best month of the year for natural gas futures.
“In extreme cold, both gas utilities and power plants will need a wave of supply at once, and power plants can’t store as much gas as coal, which they can pile up outside their generators. Even though gas producers can ramp up quickly, it isn’t clear that they can do so as rapidly as cold weather can boost demand,” according to Barron’s.
For more information on the natgas market, visit our natural gas category.