Natural gas remains a cost-effective, cleaner alternative to some other fossil fuels, but it is the cost-effective part that financial markets focus on, explaining why the widely followed United States Natural Gas Fund (NYSEArca: UNG) is down nearly 19% year-to-date. That is far from the worst showing among often volatile natural gas-related exchange traded products.
For instance, three-times leveraged-long VelocityShares 3x Long Natural Gas ETN (NYSEArca: UGAZ) has been smacked with a year-to-date loss of more than 55%.
Around half of U.S. homes utilize natural gas for heat, driving up prices during the winter months when temperatures fall.
Rising natural gas exports are also helping to support prices and draining the bloated stockpiles. Additionally, electricity companies are burning a record amount of gas, replacing coal demand.
“Designed to treble the performance of natural gas, the UGAZ has given its holders even more than their money’s worth of volatility. The underlying commodity itself is down a bit less than 15 percent this year; UGAZ has fallen 55 percent,” reports CNBC.
In addition to UNG, other non-leveraged natural gas plays include the iPath Bloomberg Natural Gas Subindex Total Return ETN (NYSEArca: GAZ). One of the rivals to UGAZ is the ProShares Ultra Bloomberg Natural Gas (NYSEArca: BOIL), which takes the two times or 200% daily performance of natural gas. BOIL is off 35.3% year-to-date.
The bearish equivalent to UGAZ is the VelocityShares 3x Inverse Natural Gas ETN (NYSEArca: DGAZ), which seeks to provide the daily inverse 3x or -300% performance of NYMEX natural gas futures. The ProShares UltraShort Bloomberg Natural Gas (NYSEArca: KOLD) provides the daily inverse 2x or -200% performance.
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 unseasonably warm winter has been bad news for natural gas demand, since the commodity is largely used for heating. Meanwhile, the other-side-of-the-coin product, DGAZ, which is designed to provide triple-levered short exposure to nat gas, is up a bit less than 40 percent in 2017,” according to CNBC.
For more information on the natgas market, visit our natural gas category.