Natural gas prices and commodity-related exchange traded funds jumped Friday as traders anticipated greater heating demand in the weeks ahead.
On Friday, the United States Natural Gas Fund (NYSEArca: UNG) gained 3.3% and the iPath Bloomberg Natural Gas Subindex Total Return ETN (NYSEArca: GAZ) rose 5.0% as natural gas futures added 3.4% to $3.656 per million British thermal units. Natural gas prices have been strengthening since November, with UNG up 15.2% and GAZ 17.4% over the past month.
Traders also capitalized on the turning sentiment with leveraged long ETFs. For instance, three-times leveraged-long VelocityShares 3x Long Natural Gas ETN (NYSEArca: UGAZ) advanced 9.9% Friday while the ProShares Ultra Bloomberg Natural Gas (NYSEArca: BOIL), which takes the two times or 200% daily performance of natural gas, rose 5.6%.
Weather models suggested that a high pressure ridge will occur over Alaska and push Arctic cold air down through the rest of North America in January, reversing the recent mild temperatures that dragged on natural gas futures, reports Alison Sider for the Wall Street Journal.
Around half of U.S. homes utilize natural gas for heat, driving up prices during the winter months when temperatures fall.
Commodity Weather Group stated that “models are in great agreement on the big picture colder trend,” but the group warned that there is still debate about when temperatures will drop.
“Those forecasts are becoming more definitive,” Jim Ritterbusch, president of Ritterbusch & Associates said of expectations for Arctic air to push down from Alaska.
Further supporting natural gas prices, natural gas production has dipped, diminishing supply. PointLogic revealed that U.S. natural gas production fell 1.3% to 78.3 billion cubic feet from December 15 through 21, or down 4.2% from the same period in 2015, reports Gordon Kristopher for Market Realist.
For more information on the natgas market, visit our natural gas category.