Natural Gas ETFs Climb as Summer Heat Fuels Cooling Demand

Natural gas-related exchange traded funds led the charge on Thursday as high air cooling demand to counter the summer heat helped support natgas markets.

The United States Natural Gas Fund (NYSEArca: UNG) jumped 6.1% on Thursday with Nymex natural gas futures increasing 6.1% to $1.78 per million British thermal units.

Natgas prices rallied Thursday, despite a federal report that revealed an expected near-normal storage build. The U.S. Energy Information Administration stated that U.S. utilities injected a near-normal 37 billion cubic feet of gas into storage for the week ended July 17, Reuters reports.

The hot weather outlook helped support natural gas markets as traders anticipate increased electricity demand for air conditioning to fight off a heatwave. With the weather expected to remain hot, Refinitiv calculated that U.S. demand, including exports, will hold at around 92.7 billion cubic feet per day this week and the next while production in the Lower 48 U.S. states averaged 88.4 billion cubic feet per day in July, or up from a 20-month low of 87.0 last month but still well below the all-time monthly high of 95.4 in November.

Furthermore, Thursday’s strong move comes off a depressed natural gas market that has suffered amid the fall off in energy demand due to the coronavirus pandemic.

“Gas has been the fuel of choice for power generators looking to meet peak demand this month, and this fuel-switching has helped absorb excess gas left by (coronavirus demand) destruction in the LNG and industrial sectors,” Daniel Myers, market analyst at Gelber & Associates, told Reuters.

However, investors should not expect this uptick in natgas markets to last as cooler weather takes over.

Bespoke Weather Services argued there is evidence of a “cooler trough” moving into the eastern half of the nation late this month into early August, Natural Gas Intelligence reports. “We believe this is temporary and that heat can return to the East as we move deeper into August, but the cooler momentum may not be finished yet,” the forecaster said. “As such, we remain on the cool side of guidance.”

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