ETF Trends
ETF Trends

Natural gas commodity-related exchange traded funds plunged Tuesday, with natgas futures experiencing their worst day in almost two years, on forecasts of a mild January ahead, sapping the outlook on heating demand.

On Tuesday, the United States Natural Gas Fund (NYSEArca: UNG) fell 10.9% and the iPath Bloomberg Natural Gas Subindex Total Return ETN (NYSEArca: GAZ) dropped 14.5%, both testing their support at the 50-day simple moving average, as natural gas futures retreated 10.0% to $3.352 per million British thermal units. Natural gas had been steadily rising since the mid-November lows of around $2.62 per mBtu.

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 33.7% on Monday while the ProShares UltraShort Bloomberg Natural Gas (NYSEArca: KOLD), which provides the daily inverse 2x or -200% performance, advanced 18.9%.

Natural gas futures experienced the largest net and percentage decline since February 24, 2014 on Tuesday, reports Alison Sider for the Wall Street Journal.

The gas market has swung in volatile trading as prices rapidly shifted in response to short-term weather outlook, which influences heating demand during the winter months. About 50% of U.S. households utilize natural gas for heating and cooling.

Many observers, though, expect that higher demand for natural gas to heat homes and fire power plants, along with lower production, could steadily trim away at the large natural gas inventories even in a normal winter season.

“The stakes are higher come winter time because weather is a bigger factor. Cold weather can really increase demand,” Kent Bayazitoglu, director of market analytics at Gelber & Associates, told the WSJ.

Consequently, analysts argued that the diminished outlook on arctic blats with milder temperatures in mid-January could end a string of huge withdrawals from natgas storage.

“We continue to watch the complete collapse of this briefly colder pattern starting as early as early next week,” forecasters at Commodity Weather Group LLC wrote Tuesday.

For more information on the natgas market, visit our natural gas category.