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A Cool Summer Could Pressure Natural Gas ETFs


Natural gas exchange traded fund traders are keeping a close watch over summer weather conditions, with initial readings pointing to a cooler month ahead.

Commodity Weather Group LLC projects weather in the eastern half of the U.S. “looks rather benign with seasonable to even cool temperatures” in the next six to 15 days, reports Jerry A. Dicolo for 4-Traders.

Natural gas traders monitor weather forecasts in the summer for signs of rising electricity demand to beat the heat. Electricity generation accounts for 39% of U.S. natural gas demand.

With the weather outlook pointing to mild and declining temperatures, electricity demand for air conditioning is expected to dip.

“We’ve seen a little moderation in the temperature outlook, so it doesn’t look quite as hot and quite as supportive for the market,” Tim Evans, an energy analyst at Citi Futures Perspective, said in a Wall Street Journal article.

Barclays calculates that temperatures that are 10% hotter or colder than normal could translate to a 50 cent move above or below the $4 per million British thermal units average for the summer.

Natural gas prices were trading around $4.0 per million British thermal units late Monday. Gas prices rose as utilities made the switch to natural gas from coal due to cheaper prices. However, analysts are cautioning that with natural gas prices at $4, utilities may switch back to coal if gas prices rise any further.

The United States Natural Gas Fund (UNG) is up 12.8% year-to-date and gained 26.9% over the past year. The ETF is currently testing its long-term, 200-day simple moving average.

For more information on natural gas, visit our natural gas category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.