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Behind The Natural Gas ETF Surge

This article was originally published on ETF Trends.com.

The United States Natural Gas Fund (UNG) is one of the best-performing commodities exchange traded products to start 2018. UNG, the benchmark natural gas exchange traded product, is up 9% over just the past week and 16% year-to-date.

Weather forecasts project warm temperatures in the latter part of January will quickly give way to a wave of bitter cold from the Midwest down to Texas and eastward as a high-pressure ridge over Alaska sets course to blow arctic air down through North America.

UNG “has rallied more than 18% from its Jan. 4 closing price (on a split-adjusted basis), ushered along by support at its now-steeply ascending 10-day and 20-day moving averages. Notably, the natural gas tracker early last week gapped above its 126-day trendline (equivalent to half a year's worth of trading days), which had previously rejected several rally attempts throughout 2017,” according to Schaeffer's Investment Research.

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.

Aggressive traders can consider the three-times leveraged-long VelocityShares 3x Long Natural Gas ETN (UGAZ) and the ProShares Ultra Bloomberg Natural Gas (BOIL) , which takes the two times or 200% daily performance of natural gas.

“Standing in stark contrast to the bullish fundamental backdrop and positive price action described above are fund flows for UNG,” said Schaeffer's. “Over the course of the fund's year-long slump in 2017, the ETF netted inflows of $338.04 million, per etf.com data. However, since the reverse split was enacted after the close on Jan. 4, UNG has netted $150.46 million in outflows -- effectively wiping out about 45% of last year's net inflows.”

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. 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.

For more information on the natgas market, visit our natural gas category.