The United States Natural Gas Fund (NYSEArca: UNG), the most widely followed natural gas exchange traded product, was hot until was not. Natural gas surged in the early stages of the fourth quarter amid expectations for cold winter temperatures in the U.S. Northeast, but that trade has unraveled this month.
Entering Tuesday, UNG sported a month-to-date loss of almost 27%. 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.
In November, UNG gained nearly 40%, good for its biggest monthly gain in a decade. Additionally, the fund saw its largest intraday gains over the past two years last month.
“But the commodity’s rapid run higher seems to have reversed almost as quickly as it occurred. After a few weeks spent appearing to test its footing around a 10% correction from its mid-November high of $39.87, UNG gapped lower twice last week — once on Wednesday, to the $33 level, and again on Friday, down to $31,” reports Schaeffer’s Investment Research.
Options Activity
UNG currently resides just under $30, which is near the important $31 area some options traders are monitoring.
“And as we enter the week in which standard December options are set to expire, the $31 area takes on another layer of significance: It’s home to peak open interest for the series, with 7,875 calls in residence at this strike price,” according to Schaeffer’s. “Notably, a review of the volume history at the December 31 call suggests the bulk of these contracts were sold to open on the supremely inopportune date of Nov. 13, just ahead of a historically massive single-day rally for UNG (to be followed by an encore performance just two days later).”
Any hint of colder-than-expected temperatures could renew UNG bullishness. Recent inventories data indicate a smaller-than-anticipated drawdown of 77 billion cubic feet, compared to the five-year average withdrawal of 79 Bcf but it was still higher than last year’s 59 Bcf pull. Total gas in storage fell to 2,914 Bcf, or 722 Bcf below last year and 723 Bcf below the five-year average.
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