The United States Natural Gas Fund (NYSEArca: UNG) is lower by more than 15% year-to-date and commodities bulls may want to look elsewhere if they’re looking for upside.
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.
“Natural-gas prices recently dropped to their lowest level in almost four years — and analysts warn that supply and demand figures point to further losses for the commodity,” reports Myra Saefong for MarketWatch.
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.
“On Feb. 10, natural-gas futures settled at $1.766 per million British thermal units, the lowest finish since March 2016, according to Dow Jones Market Data. Prices edged up to settle at $1.844 on Wednesday, but have already lost nearly 16% year to date,” notes MarketWatch.
Possibly Persistent Wealth Meaning Falls
A relatively calm winter could lead to a persistent fall in natural gas futures and related ETFs, especially for the traditional spring slide ahead. Some are even bracing for prices to dip to multiyear lows at winter’s end, and people are raising bets that the spring slide will prove even greater than usual due to too much inventory when the traditional heating season is over.
There are avenues for traders looking to profit from the current weakness in “natty.”
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.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.