Don't Count on the Natural Gas ETF Rally to Continue | ETF Trends

Natural gas-related exchange traded funds have surged since late June when natural gas prices dipped to a 25-year low, but investors shouldn’t expect this rally to last.

The United States Natural Gas Fund (NYSEArca: UNG) jumped 23.3% since its late June lows, with Nymex natural gas futures now trading around $1.87 per million British thermal units.

The ongoing natural gas supply glut will dampen any further price gains. Stockpiles of natural gas have greatly increased worldwide as supply continued to build up and the coronavirus pandemic stifled electricity demand.

The international market for liquefied natural gas, or LNG, has collapsed, upending an important outlet for U.S. shale gas, the Wall Street Journal reports. Looking ahead, with crude oil prices back up to around $40 a barrel, oil producers are reopening the spigots, which means they will produce more natural gas as a byproduct.

Commodity Futures Trading Commission data, though, showed that traders have cut back on bearish bets in recent weeks, diminishing their net shorts. However, many still caution against getting too bullish as analysts don’t expect prices to exceed $2 for a sustainable period any time soon.

While summer cooling and winter heating demand help prop up natural gas markets, the global gas glut and reduced demand due to the pandemic shutdowns have caused the lowest June prices on record in the U.S. and the lowest price for any month in Europe.

Consequently, with depressed prices around the world, gases that would have been chilled and shipped out are now sitting in U.S. tanks and storage caverns. Goldman Sachs Group Inc. analysts calculate that canceled LNG exports will inject an additional 760 billion cubic feet into U.S. inventories, which are already 30% higher year-over-year and 18% above the five-year average.

For more information on the natural gas market, visit our natural gas category.