Natural Gas ETF Burning Up as Futures Climb Above $6

ETF Trends

Natural gas exchange traded funds are heating up, with gas futures shooting above $6 for the first time in four years, as another cold winter front moves across the U.S.

The United States Natural Gas Fund (UNG) was up 4.9% Wednesday. UNG has gained 8.4% over the past week and is up 46.2% year-to-date.

NYMEX natural gas futures jumped 10.5% Wednesday, trading around $6.15 per million British thermal units, a level last witnessed on Jan. 7, 2010, reports Nicole Friedman for the Wall Street Journal. [Indexology: Nat Gas Is HOTTEST In 4 Years]

The cold winter storms have increased natural gas demand across the Midwest and Northeast – about half of U.S. households utilize natural gas as a primary heating fuel.

Commodity Weather Group LLC forecasts another cold blast to touch ground next week and extend over the eastern U.S. in early March.

Bolstering natural gas prices, traders are purchasing futures contracts to cover short positions in a so-called short squeeze after a bout of warmer weather pushed down gas futures, reports Jeanine Prezioso for Reuters.

A short squeeze is a condition when a heavily shorted security moves higher, forcing short sellers to close out positions and add to upward momentum,

Currently, the natural gas market is trading in a state of backwardation, bolstering natural gas ETF returns. The March contract is trading more than $1/mmBtu above contracts for April delivery. A futures market is said to be backwardated when near month contracts are more costly than later-dated contracts.

Natural gas futures-backed ETFs, like UNG, will benefit from a backwardated market as they roll front month contracts to avoid delivery, selling a contract that is about to expire at a profit and purchase the cheaper next month futures contract.

United States Natural Gas Fund

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