Natural Gas ETFs Climb on Hotter Weather, Summer Cooling Demand

Natural gas futures and related exchange traded funds surged Monday as prospects of warmer weather ahead helped stoke the flames under this slumping energy segment.

Among the best performing non-leveraged ETFs of Monday, the United States Natural Gas Fund (NYSEArca: UNG) increased 9.8% on over two times its average trading volume while the Nymex natural gas futures were 10.3% higher to $1.70 per million British thermal units. Nevertheless, UNG has plunged 46.3% year-to-date and declined 53.7% over the past year.

U.S. natural gas futures staged a strong rebound on Monday after dipping to its lowest level in over 25 years in the Friday session as warm weather forecasts helped fuel bets of higher electricity demand for cooling in the summer months ahead.

Natgas futures slipped to its lowest price since August 1995 in the prior session as markets were dismayed by the plunging demand in face of widespread shutdowns from the coronavirus pandemic, increasing stockpiles and lower liquefied natural gas exports in the previous month, Reuters reports.

“With temperature going up, cooling demand has increased and forecasts say they will continue to increase. Along with that, Chesapeake’s restructuring has also signaled some drop in supply,” Phil Flynn, Price Futures Group senior market analyst, told Reuters.

Chesapeake Energy filed for Chapter 11 on Sunday. The company is the largest U.S. oil and gas producer to seek bankruptcy protection in recent years after taking on heavy debt burdens without a steady revenue stream in light of the widespread negative impact of the COVID-19 outbreak on energy markets.

Supporting the summer cooling demand outlook, Refinitiv data calculated 222 cooling degree days (CDDs) in the lower 48 states over the next two weeks, compared to the average of 190 CDDs for this time of year.

However, traders will continue to weigh the negative impact of prolonged lockdowns in light of a resurgence in COVID-19 cases as many businesses have been forced to shut down. The reduced activity is also apparent around the world as U.S. LNG exports have halved since the start of the year while stockpiles continue to expand and are expected to hit a record 4.1 trillion cubic feet by the end of October.

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