The United States Natural Gas Fund (NYSEArca: UNG) slumped 37.6% last year, making it one of 2017’s worst-performing commodities exchange traded products. However, some traders believe natural gas can bounce back in 2018.
Recently, natural gas futures strengthened as traders reacted to bullish weather forecasts for most of the U.S. over the next coming weeks, which should fuel heating demand. Natgas prices typically rise ahead of the winter as colder weather adds to heating demand, with November through March as the peak period for U.S. gas consumption, according to Investing.com.
“In December, the outlook for natural gas was quite bearish. But this week, as bitter cold spread throughout a portion of the U.S., the beaten-down commodity caught a bid and rose for three straight days,” reports CNBC, citing Larry McDonald of the Bear Traps Report.
Last month, 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.
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.
Recent trends “created somewhat of a reversal in natural gas, and that will likely continue into 2018. This comes as the U.S. exports more natural gas,” according to CNBC, citing McDonald. “A forecasted cold stretch could buoy prices into January. Markets appear to be waking up to expected natural gas inventory drawdowns.”
UNG is up about 16% over just the past week, but the ETF remains more than 35% below its 52-week and still resides below its 200-day moving average.
Leveraged plays on natural gas futures include the VelocityShares 3x Long Natural Gas ETN (NYSEArca: UGAZ) and the double-leveraged ProShares Ultra Bloomberg Natural Gas (NYSEArca: BOIL).
For more information on the natgas market, visit our natural gas category.