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No Polar Vortex Bonanza for Natural Gas ETFs: Why?

Sanghamitra Saha
Bear of the Day: Bed Bath & Beyond Inc. (BBBY)

U.S. natural gas prices have been on a downhill ride this year despite Polar Vortex. Normally, Arctic Chills give life to this commodity every winter. The cold snap boosts electricity demand across the region, putting focus on natural gas.

However, despite Polar Vortex 2019 from the Dakotas through the Great Lakes region, natural gas prices failed to gain ground. Natural gas use in the United States hit a record of 150 Bcf/d on Wednesday, according to estimates by financial data provider Refinitiv, quoted by Reuters.

Half of that high demand came from heating. Although hub pricing jumped to winter highs in some areas such as Chicago Citygate, prompt month for NYMEX futures slid to its lowest price since July 23 on Feb 1.

In any case, overall gas prices have been highly volatile this winter. In November, it shot up with daily expirations ranging from $4.84 per MMBtu in November to $2.73 on Feb 1. Last winter, gas prices from November 1 to February 1 traded in much tighter range of $2.60 to $3.63, per Forbes (read: Natural Gas ETFs to Heat Up on Winter Chills?).

Supply Crunch Not Acute

Working gas in storage was 2,197 Bcf as Jan 25, 2019, per EIA estimates. This was only 0.6% down from the year-ago level and 13% lower from the five-year average. This was a pretty comfortable situation compared with recent months, per the article published on Forbes.

Uptick in Temperatures Projected

The article went on to explain that Polar Vortex 2019 is a short-term event and an uptick in temperatures is predicted afterward. Heating demand is expected to back track considerably to below average 45-47 Bcf/d over the next two weeks. Investors should note that there have been warmer-than-normal temperatures in six of the past eight weeks, per an article published on Forbes.

ETFs in Focus

An ETF tracking natural gas futures, namely, United States Natural Gas Fund (UNG) lost about 6.2% in the past five days (as of Feb 1, 2019). Investors can also take a look at United States 12 Month Natural Gas UNL which added 3.3% in the past five days and leveraged natural gas ETF ProShares Ultra Bloomberg Natural Gas (BOIL) retreated 12.1% (see all energy ETFs here).

For those who are doubtful of 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. The fund is up only 0.6% in the past five days (see all Energy ETFs here).

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