Natural gas has been one of the most talked about commodities this year, as its prices have been on a slippery slope, bringing them down to historical lows. NG futures have sank more than 17% on the year as investors have been scrambling in and out of positions which have continually turned sour. The issues for this fossil fuel started late last year, when winter failed to show up for all intents and purposes. Temperatures across the nation have been relatively mild, curtailing demand for natural gas powered appliances, leading to high stockpiles and low prices [see also 25 Ways To Invest In Natural Gas].
While natural gas has always been a volatile commodity, the recent unpredictable weather patterns have turned it into one of the riskiest trades currently available. When it comes to trading natural gas and its price outlook, the general rule of thumb is not to look to today’s weather necessarily, but the coming ten-day forecast for the majority of the country. Gas prices will be more in line with the 10 day average than any one particular day, making it a commodity that requires constant monitoring. Apart from weather, another big market mover for this commodity is the weekly EIA Natural Gas Inventories report which comments on the usage of NG over the past week as well as developing trends [see also Understanding Contango Through Natural Gas Futures].
That report is slated to hit the market later today and will certainly have a reaching impact on all NG-related assets. “With production still running at all-time peaks and inventories likely to end winter at a record high, most traders remain cautious about any upside without much colder weather to kick up late-winter heating demand” writes Reuters. It should also be noted that our current winter is the second mildest since 1950, creating a dismal outlook for natural gas. By most accounts, today’s report has the potential to show another jump in inventory which will on exacerbate things, but an unexpected dip could make for some lucrative trading on the day [see also The Ultimate Guide To Natural Gas Investing].
In light of this report, today’s ETF to watch will be the United States Natural Gas Fund LP (UNG). This fund tracks front month NG futures and is one of the most popular ETFs in the world; UNG has over $938 million in assets with an average daily volume topping 31 million. With natural gas prices stuck in a rut for the past few years this fund was forced to reverse split 2-for-1 in 2011 and will undergo a 4-for-1 split later this year in order for the fund to stay above the $5 per share threshold. UNG has lost almost 95% of its value since inception with losses of around 18% coming in 2012 alone [see also iShares Files For Multi-Asset ETF, UNG Will Reverse Split 4-For-1].
Disclosure: No positions at time of writing.