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Natural Gas ETFs Gap Lower on Milder Week-End Temperatures

This article was originally published on ETFTrends.com.

Ahead of Christmas, "Baby It's Cold Outside" was a common song in the holiday radio rotation, but to natural gas exchange-traded fund (ETF) investors, it's not cold enough. It was a milder-than-expected winter wonderland after the latest weather forecasts highlighted milder temperatures, causing natural gas ETFs to gap lower on Monday.

The United States Natural Gas Fund (UNG) declined 10 percent during the last trading session of 2018. According to NatGasWeather, "there will still be a decent cold shot sweeping across the country January 1-3, but the break January 4-7 continues to trend warmer and longer, and where quite a bit of heating demand has been lost since early in the week.”

On the leveraged ETF front, the forecast caused the  VelocityShares 3x Long Natural Gas ETN (UGAZ)  to fall over 30 percent. Inverse investors rejoiced as  VelocityShares 3x Inverse Natural Gas ETN (DGAZ) surged close to 30 percent on the milder forecasts.

“Again, there’s likely to be very cold air over Canada during the second week of January, but cold over Canada is not cold over the U.S. and would need to trend further south for bullish sentiment to return," the forecast added.

Dimming the natural gas outlook, the latest weather forecasts pointed to mild conditions leading to below-average gas-weighted degree days through the end of the month, the Natural Gas Intelligence reports.

“Once winter is over…we could see a common seasonal pullback in natural gas,” and “the higher prices seen lately may encourage more capital spending, which could help rebuild stockpiles heading into next winter,” said Colin Cieszynski, chief market strategist at SIA Wealth Management.

Earlier this month, the Energy Information Administration revealed a slightly smaller-than-anticipated drawdown of 77 billion cubic feet, compared to the five-year average withdrawal of 79 Bcf--a supply that's still higher than last year’s 59 Bcf pull. Total gas in storage fell to 2,914 Bcf, or 722 Bcf below last year and 723 Bcf below the five-year average.

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