Summer is here and that means warmer temperatures, but that is not yet stoking higher natural gas prices. For example, the United States Natural Gas Fund (NYSEArca: UNG) is down 2.6% over the past week, extending its year-to-date loss to about 26.5%.
Around half of U.S. homes utilize natural gas for heat, driving up prices during the summer months when temperatures rise. Rising natural gas exports previously supported prices and draining the bloated stockpiles. Additionally, electricity companies are burning a record amount of gas, replacing coal demand.
“Weather forecasts calling for more moderate temperatures for the eastern half of the U.S. have put a chill into any rally attempts for Natural Gas futures with the lead month July futures falling once again below the $3 price level. Gas prices have attempted to rally last week as a surge of warmer than average temperatures covered most of the country, sparking a surge in cooling demand as businesses and homes cranked-up the air conditioning,” according to OptionsExpress.
Aggressive, risk-tolerant traders can exploit plummeting natural gas prices with leveraged 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.
Many observers, though, expect that higher demand for natural gas to cool homes and fire power plants, along with lower production, could steadily trim away at the large natural gas inventories even in a normal summer season. But the problem is supplies still remain elevated.
“On the production side, the Energy Information Administration is forecasting Natural Gas production from shale formations to increase by 684 million cubic feet per day in July vs. June with production expected to increase in each of the 7 major Natural Gas producing regions. A look at the most recent Commitment of Traders report shows a major shift by the non-commercial sector of the market as these large speculative accounts and commodity funds have overall reversed their speculative positions from net-long to net-short during the reporting period ending June 6,” according to OptionsExpress.
For more information on the natgas market, visit our natural gas category.