Natural gas prices and commodity-related exchange traded funds climbed Monday as colder temperature forecasts helped support demand outlook and triggered short-covering.
On Monday, the United States Natural Gas Fund (NYSEArca: UNG) gained 5.0% and the iPath Bloomberg Natural Gas Subindex Total Return ETN (NYSEArca: GAZ) rose 2.7% as natural gas futures jumped 5.6% to $2.765 per million British thermal units, its second-best daily gain in a month.
Meanwhile, traders capitalized on the turning sentiment with leveraged long ETFs. For instance, three-times leveraged-long VelocityShares 3x Long Natural Gas ETN (NYSEArca: UGAZ) advanced 10.7% Monday while the ProShares Ultra Bloomberg Natural Gas (NYSEArca: BOIL), which takes the two times or 200% daily performance of natural gas, increased 7.1%.
While forecasts anticipate above-average temperatures to linger through the end of the month, Monday’s updates for the next week reveal areas of normal and below-normal temperatures across the East, reports Timothy Puko for the Wall Street Journal.
The colder forecasts help bolster the outlook for winter heating demand – about half of U.S. homes use natural gas for heat.
[related_stories]“It would really help if the weather was normal,” Scott Shelton, broker at ICAP PLC, said in a note.
The wintry projections also prompted traders to close out bets on lower prices, or a move known as short-covering, which further supported prices, according to Investing.
The natural gas market has plunged from highs of above $3.3 per mmBtu in October. Gas futures typically hit a seasonal low in October when mild weather pressures demand before recovering in winter. However, a mild start to the winter heating season exacerbated concerns over a growing supply glut.
Looking ahead, market observers anticipate an inventory build of 21 and 30 billion cubic feet in the week ended November 11, compared to the five-year average build of 3 bcf for the same period.
Total natural gas inventories stood at an all-time high of 4.017 trillion cubic feet, or 1.2% higher than levels at this time last year and 4.7% above the five-year average for this period of the year.
For more information on the natural gas market, visit our natural gas category.
United States Natural Gas Fund