The United States Natural Gas Fund (NYSEArca: UNG) is off nearly 19% year-to-date and that downward spiral can continue as U.S. production of the commodity continues surging.
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 previously supported prices and draining the bloated stockpiles. Additionally, electricity companies are burning a record amount of gas, replacing coal demand.
Aggressive, risk-tolerant traders can exploit plummeting natural gas prices with leveraged exchange traded products such as 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. The ProShares UltraShort Bloomberg Natural Gas (NYSEArca: KOLD) provides the daily inverse 2x or -200% performance.
“Production stood at 80.2 billion cubic feet per day (bcfd) in February, up 1.8 bcfd from January.
Gross gas production figures for February stood at their highest since August 2016, but February 2016 still holds the record for most production at 82.6 bcfd. Texas, Pennsylvania, and Oklahoma – the three most prolific gas-producing states – all saw new gas production, the latest numbers show,” reports ETF Daily News.
Earlier this year, the iPath Series B Bloomberg Natural Gas Subindex Total Return ETN (NYSEArca: GAZB) debuted as an alternative to the iPath Bloomberg Natural Gas Subindex Total Return ETN (NYSEArca: GAZ).
GAZB will try to reflect the performance of the same index as GAZ, Bloomberg Natural Gas Subindex Total Return Index, which tracks the potential returns through an unleveraged investment in natural gas futures contracts.
ETNs are debt securities issued by financial institutions that promise to pay the return of an index, minus fees and taxes. Therefore, investors are exposed to the credit risk or the possibility the underwriting bank goes bankrupt. The note can be vulnerable if the issuer gets into financial trouble, otherwise known as a default. With an ETN, an investor can lose some or all of their investment if the ETN issuer goes under.
“Higher prices in natural gas, expected to rise from the March level of $2.88 to an average of $3.10 in 2017, with a further increase to $3.45 in 2018, will likely contribute to a decline in the share of electricity supplied by natural gas in the coming years, as gas loses its competitive edge. Surprisingly, the EIA predicts that natural gas’ share will fall from 34 percent to 32 percent by 2018, while that of coal will increase from 30 percent to 31 percent,” according to ETF Daily News.
For more information on the natgas market, visit our natural gas category.