The once beaten down natural gas sector-specific exchange traded fund has surged over the past month as U.S. crude oil producers turn off supply and investors bet on higher natgas prices.
The First Trust Natural Gas ETF (NYSEArca: FCG), which tracks natural gas exploration and production companies, was the best performing non-leveraged ETF of the past month, jumping 84.8%.
The historic fall in crude oil prices, which dipped into the negative for the first time ever, on the heels of the collapse in demand in response to the coronavirus outbreak has forced many oil producers to turn off oil wells. The shutdowns not only diminishes the supply of crude oil, but it also reduces a lot of natural gas that is extracted as a byproduct.
Further bolstering the natural gas markets, coal’s share of U.S. electricity generation has steadily declined to about a third from last year, the Wall Street Journal reports.
Both factors have helped drive interest for natural gas and its producers. For example, hedge funds and other speculators last week were net long natgas for the first time since last May, according to Commodity Futures Trading Commission data.
SunTrust Robinson Humphrey analysts upgraded their outlook for shares of seven gas producers by an average of 69%. Additionally, Tudor, Pickering, Holt & Co. recommended EQT, Cabot Oil & Gas Corp. and Tourmaline Oil Corp. to capitalize on near-term gains due to 6 billion to 7 billion cubic feet of gas per day that were cut from the market following the closure of oil wells.
“We think the dry gas producers are attractive,” Mark Unferth, a portfolio manager at Alpine Capital Research, told the WSJ, referring to companies that don’t produce much poorly priced oil and natural gas liquids. “We’ve been adding to our exposure the past six weeks and overall it’s about 5% of our portfolio.”
For more information on the natgas market, visit our natural gas category.