Natural gas exchange traded funds continued to burn out, with natgas futures down to their lowest level in five weeks, as warmer-than-normal weather in the Midwest fueled speculation that a more temperate winter could diminish heating demand.
On Monday, the United States Natural Gas Fund (NYSEArca: UNG) fell 0.8% and the iPath Bloomberg Natural Gas Subindex Total Return ETN (NYSEArca: GAZ) dropped 1.4% as natural gas futures retreated 3.7% to $2.881 per million British thermal units. Over the past week, UNG declined 4.7% and GAZ decreased 4.6%.
Meanwhile, traders capitalized on the turning sentiment with inverse or bearish ETFs. For instance, the VelocityShares Daily 3x Inverse Natural Gas ETN (NYSEArca: DGAZ), which seeks to provide the daily inverse 3x or -300% performance of NYMEX natural gas futures, jumped 2.4% on Monday while the ProShares UltraShort Bloomberg Natural Gas (NYSEArca: KOLD), which provides the daily inverse 2x or -200% performance, advanced 0.8%. Over the past week, DGAZ surged 13.4% and KOLD increased 7.4%.
Sapping strength from the natural gas rally in recent sessions, temperatures are forecasted to remain above normal in the central U.S. from October 29 through November 7 while Northeast readings may be closer to average for this period of the year, reports Christine Buurma for Bloomberg.
[related_stories]The Weather Company also projects warmer than usual temperatures across the country in the upcoming November through January months, except for the Southeast. About 50% of U.S. households utilize natural gas for heating and cooling.
Consequently, the weakening natural gas prices reflect traders’ concern of another winter of low heating demand, which will further add to a glut in fuel inventories and weigh on prices next year. While the low energy prices have caused a dip in production from shale basins and record demand from power plants over a hot summer has helped diminish a supply surplus, natural gas stockpiles remain above normal levels.
“The extended forecast is not helping prices move higher,” John Kilduff, a partner at Again Capital LLC, told Bloomberg. “We’re going into the winter with a substantial amount of gas in storage.”
As of October 14, inventories were at almost four trillion cubic feet, or more than five percent above the five-year average.
For more information on the natgas market, visit our natural gas category.
United States Natural Gas Fund (NYSEArca: UNG)