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Natural Gas ETFs Burn Up on Expectations for a Long Cold Spell

This article was originally published on ETFTrends.com.

Natural gas prices and related ETFs surged Monday on rising long-term expectations for heating demand across the Midwest and East as a cold front pushed across the U.S.

The United States Natural Gas Fund (UNG) gained 12.7% Monday as Nymex natural gas futures were 13.3% higher to $3.51 per million British thermal units.

Additionally, for the more aggressive traders, the three-times leveraged-long VelocityShares 3x Long Natural Gas ETN (UGAZ) surged 28.8% Monday while the ProShares Ultra Bloomberg Natural Gas (BOIL) , which takes the two times or 200% daily performance of natural gas, advanced 18.4%.

According to Bespoke Weather Service, weather model changes over the weekend were "incredibly bullish" as intense cold arrives for the final third of January, Natural Gas Intelligence reports.

“A very significant cold shot is expected” from next Sunday through Jan. 22 “as a lobe of the polar vortex swings down across North America,” Bespoke said, adding that the cold will be felt across Midwest into the East and drive gas-weighted degree days to near-record levels for a few days.

“We then see cold briefly relax, with GWDDs consistently running above average through this time,” Bespoke said. “There is incredible model agreement that very significant cold returns as well through the final week of January and into early February, with risks of another lobe of the tropospheric polar vortex swinging through.”

Fueling bets on natural gas futures

The below-average temperatures could persist into the next two weeks, fueling bets on natural gas futures as heating demand rises to combat the cold.

Natural gas prices have plunged since the December highs, following a spike above $4 per mmBtu in the fall after the hotter-than-expected late summer temperatures and sudden cold fall raised demand for cooling and heating, which dragged natural gas inventories to their lowest level in over a decade.

Related: Top 10 Best Performing ETPs of 2018

While natgas stockpiles have recovered somewhat after the warmer weeks toward the end of 2018, a prolonged cold spell could increase demand and put pressure on inventories, bolstering gas prices.

"You would need to really sustain this cold through at least a third or half of February in order to get $4, even though we've made great progress in the five-year storage deficit over the last month," Jacob Meisel, chief weather analyst at Bespoke Weather Services, told CNBC. "I still wouldn't rule out $4 if the cold lasts long enough."

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