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Natural Gas ETFs to Heat Up on Winter Chills?

Is it time to bet on natural gas on winter chills and play these ETFs?

Like in most winters, natural gas prices started receiving warmth from the chills this year. We are entering the winter heating season with natural gas storage at the lowest level in 15 years. Per EIA, natural gas inventory was 16.5% lower than the five-year average and 16.9% lesser than the year-ago level (read: Natural Gas ETFs in Focus as Prices Soar).

Normally, Arctic Chills give life to this commodity every winter. The cold snap boosts electricity demand across the region, putting focus on natural gas. This year too, forecasts of colder-than-expected temperatures in the United States might drive natural gas prices higher.

According to AccuWeather, the United States may witness the El Nino weather pattern this winter, causing much colder-than-average temperatures in much of the Northeast, mid-Atlantic, Great Lakes and Ohio Valley of the country, particularly in January and February.

While “New York City and Philadelphia may wind up 4 to 8 degrees colder this February compared to last February,” the Southwest could see a dry winter with temperatures 2 to 4 degrees warmer than normal, per senior meteorologist.

The latest forecast from Bespoke Weather Services hints at the above-average gas demand from Nov 9 through Nov 18. Per oilprice.com, there is a lot less coal to depend on and inventories drop to low levels amid rising demand.

Overall, “a cold winter paired with higher coal prices and reduced gas-to-coal switching could propel NYMEX natural gas to a brief spike over $5.00/MMbtu,” according to BofAML, quoted on Oilprice.com. Henry Hub Natural Gas Spot Price was $3.20/MMbtu on Oct 22.

Investors should note that some analysts are of the view that “such low storage numbers yet still low pricing made clear that gas has been a greatly undervalued commodity.” In spite of record U.S. gas production, a cold April and a hot summer did not give natural gas storage a leeway to adequately recoil.

ETFs in Focus

Utilities bills are likely to bump up. On average, bills will rise by $2.90 per month. An ETF tracking natural gas futures, namely, United States Natural Gas Fund UNG) added about 10% in the past five days (as of Nov 5, 2018). Investors can also take a look at United States 12 Month Natural Gas UNL which added 3.2% in the past five days and leveraged natural gas ETF ProShares Ultra Bloomberg Natural Gas BOIL tacked on 17.5% gains (see all energy ETFs here).

For those who are doubtful of the risky futures contracts, it is worth noting that there is an equity play out there that targets the broad natural gas market in ETF form. The fund is the First Trust ISE Revere Natural Gas Index Fund FCG, an ETF that holds about 40 stocks in its basket and charges investors 60 basis points a year in fees (see all Energy ETFs here).

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