It might be a milder-than-expected winter wonderland after the latest weather forecasts hinted at milder temperatures in late December, causing natural gas exchange-traded funds (ETFs) to decline sharply.
As such, the United States Natural Gas Fund (NYSEArca: UNG) declined 6.9% Friday as Nymex natural gas futures dropped 6.3%, breaking below its $4 level to $3.87 per million British thermal units. From a technical standpoint, UNG was also testing its short-term support at the 50-day simple moving average.
On the leveraged ETF front, the forecast caused the VelocityShares 3x Long Natural Gas ETN (NYSEArca: UGAZ) to fall over 20 percent.
“Trading gas at this time of year is a weather trade, and it varies with the forecasts,” said James Williams, energy economist at WTRG Economics.
Dimming the natural gas outlook, the latest weather forecasts pointed to mild conditions leading to below-average gas-weighted degree days through the end of the month, the Natural Gas Intelligence reports.
“Once winter is over…we could see a common seasonal pullback in natural gas,” and “the higher prices seen lately may encourage more capital spending, which could help rebuild stockpiles heading into next winter,” said Colin Cieszynski, chief market strategist at SIA Wealth Management.
On Thursday, the Energy Information Administration revealed on a slightly smaller-than-anticipated drawdown of 77 billion cubic feet, compared to the five-year average withdrawal of 79 Bcf–a supply that’s still higher than last year’s 59 Bcf pull. Total gas in storage fell to 2,914 Bcf, or 722 Bcf below last year and 723 Bcf below the five-year average.
Traders who want to take advantage of the weakness in natural gas can look to the VelocityShares 3x Inverse Natural Gas ETN (NYSEArca: DGAZ), which gained just over 23 percent on Friday.
“Investors should put risk management above all,” and “invest with the [trading]trend as opposed to bottom-fishing or swimming upstream,” said Adam Koos, president of Libertas Wealth Management Group.
For more market trends, visit ETF Trends.