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Extreme Cold Weather Forecast Puts Natural Gas ETFs in Focus

Zacks Equity Research
Natural gas storage is at the lowest levels since 2005, putting related ETFs in focus.

Natural gas futures for November rose by nearly 2.6% to $3.242 per million British thermal units (mBtu) on Oct 15 due to forecast of below-average temperatures in the coming 11-15 days. The south and Midwest regions are expected to be most affected (see: all the Energy ETFs here).

 

Per the U.S. Energy Information Administration (EIA) weekly inventory release, natural gas storage injections were in line with expectations but inventories remain significantly below their five-year moving average just before the onset of winter. Working natural gas inventories are expected to enter the winter heating season at 3,263 billion cubic feet per day (Bcf/d), the least since 2005.

 

Fundamentally, total supply of natural gas averaged around 91.1 Bcf/d, essentially unchanged for the week ended Oct 5. Meanwhile, daily consumption was up 0.9% to 78.2 Bcf on stronger power generation demand. The production of dry natural gas remained constant week over week.

 

U.S. consumption of natural gas tends to be in the range of 30-35% for winter, higher than in the spring and fall months, when temperatures are on the milder side.  

 

“With natural gas storage levels so low, prices are sensitive to cold this early in the season,” said Jacob Meisel, Bespoke Weather Services chief weather analyst and added that prices could shoot up $4 this winter.

 

“Natural gas supplies are 17 percent below last year and the five-year average levels. Put in real numbers, that’s 600 Bcf below. It means we’re starting off the winter with a big hole in our supply,” said John Kilduff of Again Capital.

 

Per NetgasWeather, the coming weather pattern would increase inventory deficits versus the five-year average to more than 650 Bcf, and more likely toward 700 Bcf.

 

However, fundamentals of the industry remain on the stronger side with the preference for cleaner burning fuel globally. EIA expects global demand for the commodity to grow by 43% from 2015-2040 (see: High Flying Saudi Arabia ETF Plunges on Sanction Concerns).

 

The natural gas export space has hit a roadblock with China imposing 10% tariffs on U.S. liquefied gas starting Sep 24. This has curbed business for American LNG producers as increased prices make it less competitive in a thriving China market (read: U.S. Natural Gas Exports Hit by Tariffs: ETFs in Focus).

 

Below we highlight natural gas ETFs:

 

United States Natural Gas Fund UNG

 

It tracks the natural gas futures. AUM is $347.2 million and expense ratio is 1.3%. The fund has returned 15.3% year to date. 

 

First Trust ISE-Revere Natural Gas Index Fund FCG

 

It tracks the ISE-Revere Natural Gas Index. AUM is $129.5 million and expense ratio is 0.60%. It has lost 1.8% year to date. It has a Zacks ETF Rank #3 (Hold) and High risk outlook.

 

United States 12 Month Natural Gas Fund UNL

 

It tracks natural gas futures. AUM is $5.4 million and expense ratio is 0.90%. The fund has returned 8.2% year to date.

 

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US-12M NATL GAS (UNL): ETF Research Reports
 
FT-ISE R NAT GA (FCG): ETF Research Reports
 
US-NATRL GAS FD (UNG): ETF Research Reports
 
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