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Will Natural Gas ETFs Recover in the Near Term?

Sanghamitra Saha

U.S. natural gas is at its lowest price level since May 2016. The U.S. Energy Information Administration reported last week that domestic supplies of natural gas rose 115 billion cubic feet for the week ended Jun 14, beating the average forecast of an increase of 104 billion cubic feet. The United States Natural Gas Fund UNG is down 20% in the second quarter and is off 11.4% in the past month (read: Top and Flop ETFs of Last Week).

What Lies in the Medium-Term?

Four-year low natural gas prices aren’t likely to turn around materially until there is some forecast of inclement weather, which can boost demand for the commodity. The natural gas markets are extremely bearish owing to supply glut.

Some analysts believe that demand could pick up later in the year, around November.Winters are good times for natural gas investing. Normally, Arctic Chills give life to this commodity every winter. The cold snap boosts electricity demand across the region, putting focus on natural gas.

Near-Term Rally?

However, warmer-than-expected weather in July has boosted natural gas futures on Jun 24. Bespoke Weather Services forecast a hotter first week of July, though the firm indicated that trends were mixed over the weekend. As a result, UNG was up 4.8% on Jun 25.

ETFs in Focus

Overall, even if there is a near-term recovery, the natural gas is likely to take several months to appear as a great buying opportunity. So, investors need to be watchful about United States 12 Month Natural Gas UNL, which lost 15.7% in the second quarter, but gained 4% on Jun 24. Leveraged natural gas ETF ProShares Ultra Bloomberg Natural Gas BOIL retreated 38.6% in the second quarter but rose 9.7% on Jun 24 (see all energy ETFs here).

It is worth noting that there is an equity play that targets the broad natural gas market in ETF form. The fund is 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. The fund lost 17% in the second quarter and 0.9% on Jun 24 (see all Energy ETFs here).

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ProShares Ultra Bloomberg Natural Gas (BOIL): ETF Research Reports
 
US Commodity Funds United States 12 Month Natural Gas Fund LP (UNL): ETF Research Reports
 
First Trust Natural Gas ETF (FCG): ETF Research Reports
 
US Commodity Funds United States Natural Gas Fund LP (UNG): ETF Research Reports
 
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