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Polar Blast Warms Up Natural Gas ETFs

Kinder Morgan (KMI) reported earnings 30 days ago. What's next for the stock? We take a look at earnings estimates for some clues.

Natural gas prices basking in the glow of winter chills has become an almost annual event.  Ample supplies were the perpetrator of the downbeat natural gas prices. United States Natural Gas UNG lost about 27.3% in the last one year (as of Jan 4, 2018) (read: 3 ETF Losers of 2017 That Can Rebound in Q1).

Normally, Arctic Chills give life to this commodity every winter. The cold snap boosts electricity demand across the region, putting natural gas in focus. In fact, in 2014, the Polar Vortex caused natural gas prices to jump over 50%. As almost 50% of Americans use natural gas for heating purposes, withdrawal in natural gas supplies push up the commodity’s prices.

Ice has draped the Eastern half of the United States. Per oilprice.com, there is a dual impact of such chilly weather. Extreme cold is cubing natural gas production and demand for heating surges as people seek to stay warm.

As per Reuters, gas output in the Bakken declined about 20 percent since last month. “Reuters said that gas flowing through interstate pipelines from North Dakota dropped from 1.3 billion cubic feet per day (bcf/d) in the week ending on December 25 to just 1 bcf/d as of Tuesday,” quoted on oilprice.com.

On the demand front, the U.S. gas consumption has jumped because of the cold snap – apparently a seasonal issue. The U.S. “burned the most natural gas ever” on Jan 1, as per Bloomberg. New Year’s Day was “the coldest day of the 21st century” in the United States. In short, 2018 (consumption of 143 bcf of natural gas on January 1) broke the record of the polar vortex felt in 2014. The previous record was of 142 bcf.

ETF Impact

An ETF tracking natural gas futures, namely United States Natural Gas Fund UNG), added about 12.6% since Dec 25 (as of Jan 4, 2018). Investors can also take a look at United States 12 Month Natural Gas UNL, which added 7.3% during the same time frame, and leveraged natural gas ETF ProShares Ultra Bloomberg Natural Gas BOIL, which has tacked on about 22.6% gains (as of Jan 4, 2018) since Christmas (see all energy ETFs here).

Investors should note that natural gas equities, such as First Trust Natural Gas ETF FCG, also gained 5.6% during the time frame.

Will the Rally Continue?

Though there have been some incredible price increases lately in the natural gas market, the commodity normally stages a price reversal. Winter is expected to moderate across the country with the advent of spring and natural gas demand will trip up then.

On Jan 4, 2018, the U.S. Energy Information Administration (EIA) indicated that the country’s natural gas stocks fell by 206 billion cubic feet for the week ending Dec 29, against analysts’ expectation of a withdrawal of between 205 billion and 228 billion cubic feet. The release of this downbeat data led to a slump in natural gas prices on Jan 4. The fund UNG lost about 4.1% on Jan 4 but added about 0.4% after hours.

Overall, natural gas exchange-traded products can be excellent short-term plays. East Coast, South, the upper Midwest and northern Rockies are expected to experience severe winters in the coming days. Meisel, chief weather analyst at Bespoke Weather, indicated that “the futures market is now expecting a natural gas storage to be 1.265 trillion cubic feet by the end of winter, compared with the five-year average of 1.7 trillion cubic feet.”

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