Natural gas-related exchange traded funds strengthened Tuesday, with natgas prices hitting a 14-year high.
The United States Natural Gas Fund (UNG) rose 1.4% on Tuesday. Meanwhile, Nymex natural gas futures were up 2.1% to $8.91 per million British thermal units.
Natural gas futures pared gains by late Tuesday, surging by over 11% to $9.75 per million Btu earlier in the day, or its highest level since July 2008, CNBC reported. Natgas futures are also on pace for their best monthly gains since the contract’s inception back in 1990.
“Although the magnitude and speed of recent natural gas price gains point to contributing non-fundamental market dynamics, supportive fundamentals are nonetheless the primary driver,” EBW Analytics Group said in a note to clients. “Fundamentally, scorching hot weather is the predominant bullish driver.”
The United States is currently sweltering under the summer heat, with the lower 49 states on pace to experience their fourth-hottest July on record, according to Bespoke Weather Services.
“Obviously, that is still impressively hot, and the heat is expected to roll on into August, with the current forecast indicating the potential for some record gas-weighted degree days in the first third of the month,” Bespoke Weather Services said in a note. A “top-five hottest August on record looks very achievable, given La Niña and the look of the projected pattern.”
Looking ahead, the heat does not seem to be relenting any time soon, so electricity demand for air cooling will remain elevated.
“The market is focusing on reloading, intense heat in the second week of August, which would flirt with triple-digit cooling-degree days (CDD),” EBW Analytics Group senior analyst Eli Rubin said in a note.
Natgas prices could also find support from global markets, especially European demand for liquefied natural gas as supply sources from Russia remain uncertain.
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