Natural gas prices and related ETFs continued to retreat Monday as weather forecasts do not reveal any intense cold heading toward the New year.
The United States Natural Gas Fund (NYSEArca: UNG) fell 6.2% Monday, breaking below its short-term, 50-day simple moving average, while the Nymex natural gas futures declined 7.0% to $3.56 per million British thermal units.
Meanwhile, aggressive, risk-tolerant traders exploited the 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. On Monday, DGAZ surged 18.8% and KOLD jumped 13.3%.
NatGasWeather said weather data over the weekend revealed an ongoing bearish pattern through December 28 to 29 with the Global Forecast System falling 23 billion cubic feet of expected demand compared to Friday, the Natural Gas Intelligence reports.
“Over the next 15 days, there will still be weather systems with rain and snow, as well as occasional cold shots across the northern U.S.,” NatGasWeather said. “However, the main issue remains where the frigid cold pool over Canada won’t get tapped effectively by U.S. weather systems, keeping lighter than normal national demand in place.”
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“As such, the natural gas markets will need to wait until around the start of the new year for the next opportunity for more impressive cold to arrive across the northern U.S., which the latest Sunday data teases. But this would require more convincing evidence considering it’s at the far end of the 15-day forecast,” the forecaster added.
Bespoke Weather Services also mirrored this sentiment, arguing that conditions leading to below average gas-weighted degree days will “likely to dominate” through the end of the month. Bespoke argued that temperatures will remain above average due to tropical forcing stalling across the Maritime Continent over the next two weeks, which will especially keep the East warmer.
“This will gradually break down Week 3 into Week 4 as cold should return to the East through the first half of January, though it will take time and at least for now the endings of model runs still do not show any kind of rapid transition back to significant cold,” Bespoke said.
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