Natural gas-related ETFs are now at the mercy of the weather gods. In the long-term, however, the economic recovery will play a greater role in the direction of prices.
An increased supply of natural gas came via technological breakthroughs that allowed for more production per well. Now there is a high inventory of natural gas, or “gas supply glut,” because of the low demand.
The cooler summer has led to less air conditioner usage, which reduced natural gas demand for electric-power generators. The weaker economy resulted in a weakened industrial sector, along with decreased demand for gas.
Natural gas traders are weighing expectations for mild weather coupled with the large natural gas supply against a potentially colder winter, comments Jason Womack for The Wall Street Journal. Regardless of what the National Weather Service forecasts, some traders were buying up gas and betting on a cold winter.
In the long-term, analysts think that the pullback in natural gas drilling activity may result in higher prices when the economy recovers and industries demand more fuel.
- First Trust ISE-Revere Natural Gas (NYSEArca: FCG): up 45.1% year-to-date
- United States Natural Gas (NYSEArca: UNG): down 50.8% year-to=date
Max Chen contributed to this article.