The natural gas market and related ETFs may not see any relief soon as the supply glut extends well beyond the U.S. borders and overseas markets experience a steep plunge in prices for liquefied natural gas
The United States Natural Gas Fund (NYSEArca: UNG) has declined 13.2% year-to-date and decreased 38.9% over the past year while the Nymex natural gas futures dipped to $1.86 per million British thermal units.
Reflecting the ongoing troubles with a glut in natgas and potentially dampening bets that foreign markets could continue to take in U.S. supply, liquefied natural gas prices are now hovering at their lowest level on record in Asia, the Wall Street Journal reports.
The main price gauge for liquefied natural gas in Asia declined to $3 per million British thermal units Thursday, compared to over $20 per mBtus five years ago, as U.S. LNG shipments inundated global markets.
Further weighing on prices, the coronavirus outbreak fueled fears of slowing economic activity in the world’s second largest economy, and a mild winter in Asia, along with ample stockpiles, kept up with demand.
“The fundamentals were already really weak,” Ira Joseph, head of gas and power analytics at S&P Global Platts, which tracks prices, told the WSJ. “The whole market is really oversupplied.”
The plunge in international liquefied natural gas prices has come to the point where it may become too costly to ship it out of the U.S. It costs about $2 per million British thermal units to liquefy and transport the fuel out to Asia where prices there have dipped to a level that makes spot deliveries from the U.S. cost more than what many are willing to pay.
“The U.S. cannot sustain reduced LNG exports this summer,” Bank of America analysts wrote in a note. “Natural gas prices might have to go low enough to stimulate sufficient Midwest power-sector natural-gas demand to balance the entire global gas market.”
More aggressive, risk-tolerant traders could also continue to hedge against the plummeting natural gas prices with inverse or bearish 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.
For more information on the natgas market, visit our natural gas category.