While natural gas prices have weakened in recent weeks on speculation of a return to normal or even warmer winter conditions, the energy-related ETF strengthened Monday on potential bets for colder weather ahead.
On Monday, the United States Natural Gas Fund (NYSEArca: UNG) gained 5.0% as natural gas futures added 5.9% to $2.77 per million British thermal units.
Traders also capitalized on the turning sentiment with leveraged long ETFs. For instance, three-times leveraged-long VelocityShares 3x Long Natural Gas ETN (NYSEArca: UGAZ) surged 14.1% Monday while the ProShares Ultra Bloomberg Natural Gas (NYSEArca: BOIL), which takes the two times or 200% daily performance of natural gas, advanced 9.0%.
The natgas market has suffered through falling prices despite lower inventories. For instance, UNG declined 17.5% over the past month and 44.1% year-to-date. Meanwhile, the U.S. Energy Information Administration has revealed that natural gas inventories fell by 69 billion cubic feet or 1.8% to 3,626 Bcf on December 1–8, 2017. Furthermore, U.S stocks of natural gas were 3.626 billion cubic feet as of last week’s end or 5.3% below levels the same week last year and 0.7% below the five-year average.
“We’re getting the cold weather now, finally … but the problem is the weather models are not holding onto it,” Commodity Weather Group President Matt Rogers told Natural Gas Intelligence. “There’s just so much volatility.”
Natural gas prices may finally be beginning to perk up as traders anticipate colder weather ahead. Jeremiah Shelor for Natural Gas Intelligence reports that PointLogic Energy analyst Alan Lammey said the firm’s six- to 10-day outlook, which has high forecast confidence, was exhibiting “the arrival of potentially some of the coldest temperatures the nation has seen during late December in about 17 years. What is known is that an exceptionally amplified jet stream pattern will develop across North America with a series of strong ridges and troughs. One of these is an impressively large and sharp trough that will dig southward across the Lower 48 allowing Arctic air to flood south. What remains uncertain at this time is how far east this surge of Arctic air will progress.”
Meanwhile, MDA Weather Services , in its latest six- to 10-day, said forecast changes from Sunday “were colder from the West to the Midcontinent” due to flows from the Arctic, which may fuel “even strong below normal temperatures into the Northwest, Rockies, Plains and Midwest.”
The cold weather could finally trigger increased heating demand across the nation. Around half of U.S. homes utilize natural gas for heat, driving up prices during the winter months when temperatures fall.
The weekend weather guidance “finally picked up on the significant cold trends in the long-range we had been watching, as those translated into the medium-range and are seen bringing a very significant shot of heating demand to the country….Prices did gap up in line with expectations last evening, though the gap was rather small compared to rather major cold trends, as bulls may still be timid in the face of such significant declines last week,” Bespoke Weather Services said. “It is clear that weather is responsible for almost all of this rally, and if cold were to trend unimpressive prices would quickly pull back.”
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