Natural Gas ETFs Rise as Focus Shifts to Summer Cooling Demand

Natural gas-related exchange traded funds advanced on Friday as prices rapidly shifted on any changes in demand with ongoing supply constraints providing continued support.

On Friday, the United States Natural Gas Fund (NYSEArca: UNG) rose 4.8%. Meanwhile, Nymex natural gas futures were up 5.6% to around $7.28 per million British thermal units.

Natural gas futures rallied on Friday as some parts of the U.S. moved away from heating demand toward cooling demand in the face of rising temperatures over the weeks ahead, Reuters reports. Market observers also highlighted ongoing support from rising global gas prices that will help maintain U.S. liquefied natural gas exports.

The U.S. gas market remains largely insulated from the surge in global gas prices since the United States is the world’s top natural gas producer. All of the extracted fuel is mostly used for domestic consumption while capacity constraints put a cap on exports of more LNG to global markets no matter how high prices rise overseas.

“Still, the same fundamental framework that enabled recent meteoric gains — a storage trajectory too low for market comfort with few easy fixes available — is likely to resurface into early summer and drive natural gas higher,” EBW Analytics Group senior analyst Eli Rubin said in a recent note, according to Natural Gas Intelligence.

With U.S. LNG finding ample demand in overseas markets, natural gas prices have found support on the low end, so investors should not anticipate a swift decline in natural gas markets anytime soon.

“Closer to home, with what we see as a continued elevated risk profile for European balances and thus firmness in pricing, we see the present dynamics continuing to support healthy” economic incentives for U.S. LNG exports, along with a “positive risk/reward skew for Henry Hub prices,” according to analysts at Tudor, Pickering, Holt & Co. (TPH).

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