Natural Gas ETFs Jump on Hopes of Stockpile Plunge - ETF News And Commentary
14 Janeiro 2014 - 11:00AM
Zacks
While the bout of extreme weather across much of the United States
may have derailed job growth and snarled air travel, it is
certainly helping to boost the outlook for natural gas. The popular
heating fuel is used by roughly half of Americans to warm up their
homes, and with near-record low temperatures, many were burning far
more heat than normal.
After all, here in Chicago, temperatures were approaching 50 below
(Fahrenheit) with the wind chill, while much of the rest of the
Midwest saw similarly low readings. Weather in the Northeast was
also quite chilly, while the so-called ‘polar vortex’ of cold
weather pushed many parts of the South below freezing as well (read
Beat the Cold Weather with These Hot Sector ETFs).
Due to this, many speculate that natural gas demand soared, as heat
was running near non-stop in many homes just to keep temperatures
at a decent level. And thanks to this huge level of demand across
such a large part of the country, some are looking for supplies to
drop by over 300 billion cubic feet, possibly surpassing the
previous record of 285 bcf, and crushing last year’s supply
reduction of 148 bcf in the same week.
“Traders are focusing on the fact that we’re probably going to see
a record storage withdrawal,” said Tom Saal, senior vice president
of energy trading at FCStone Latin America LLC in Miami, for a
Bloomberg article. “The market’s not ready to give up on winter
yet.”
Other Factors
It also doesn’t hurt that many are now forecasting
colder-than-normal weather across much of the Midwest and Northeast
yet again in the coming days. Though the temperatures aren’t
expected to plunge into danger territory again, the round of cold
could add to natural gas demand once more and curtail supplies
again (see all the Energy ETFs here).
And with all this frigid weather, the longer term outlook for
natural gas is improving, with some expecting the storage level at
the end of March to be just 1.4 trillion cubic feet. While that is
obviously still a lot of natural gas, it would represent a 20%
decline from the year ago time frame, suggesting we might see some
bullishness in the weeks ahead, especially if extreme conditions
remain in place.
ETF Impact
Thanks to this speculation and the hopes for more cold weather,
natural gas ETFs soared in Monday trading. The top natural gas ETF,
the
United States Natural Gas ETF (UNG), jumped by
5.75% on the day, while the more spread out across the futures
curve
UNL rose by about 3.65% in the
session.
Meanwhile, leveraged natural gas ETFs also did quite well on the
day, helping to reverse their 2014 trend. In fact,
BOIL (the 2x leveraged product) rose by about
10.5% on the day, while the triple leveraged
UGAZ
zoomed higher by 16.2% in the session (see Understanding Leveraged
ETFs).
Bottom Line
If the abnormally cold weather continues, it could really eat into
the huge stockpiles of natural gas. These massive supplies have
kept prices subdued, but with such heavy usage of the fuel for
heating purposes lately, we are likely to see a far smaller supply
of natural gas heading into the Spring.
However, keep in mind that supplies are still large—even with a big
cut to the stockpile—and that new technologies are making it far
easier to pull natural gas from the ground. The bout of higher
prices might be good news for producers, such as those found in the
natural gas equity ETF
FCG, but it might take a
while to flow through to their bottom lines (read The Polar Vortex
Could Push These Stocks Higher).
So traders might look to a bullish run in natural gas in the days
and weeks ahead, though its longer term outlook remains a bit more
uncertain. More winter weather in the weeks ahead will certainly
help natural gas ETFs heading into the Spring, though huge
supplies of the fuel mean that a trend of extreme weather is needed
to keep natural gas prices, and ETFs, rising as we move further in
2014.
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PPO-ULT DJ-U NG (BOIL): ETF Research Reports
FT-ISE R NAT GA (FCG): ETF Research Reports
VEL-3X LNG NG (UGAZ): ETF Research Reports
US-NATRL GAS FD (UNG): ETF Research Reports
US-12M NATL GAS (UNL): ETF Research Reports
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