Natural Gas ETF Surges While Real Estate Drops

A week that saw the Dow cross the 10,000 mark for the first time in a year ended with the blue chip index just shy of the psychologically important level. Most securities finished Friday in the red, as the ETFdb 60 Index, a benchmark designed to measure the performance of the universe of investable assets available through exchange-traded products, closed down $4.76 (0.5%) to 1,018.00. Losers outnumbered winners by more than 2-to-1 on aggregate volume for the benchmark components of 772 million shares.

The United States Natural Gas Fund (UNG) continued its wild ride Friday, surging 3.1% as investors continue to bet on cold winter weather and a recovery in gas demand. With natural gas prices near their low for the decade, some investors are making big bets on a natural gas boom beginning in the fourth quarter of 2009 and continuing through 2010. UNG has been volatile in recent weeks, as the combination of an uncertain regulatory environment and contradictory fundamental factors have sent prices for the natural gas ETF all over the board.

The iShares Dow Jones U.S. Real Estate Index (IYR) led the decliners on Friday. IYR finished Friday well above its intraday low, but was still down 2.7% for the session. Real estate ETFs have been closely monitored by investors this week as major banks deliver earnings and provide a glimpse into expected loan loss rates in coming quarters. Some fear that commercial real estate will be the next shoe to drop in an ongoing financial crisis.

Disclosure: No positions at time of writing.

Comments

[apppro:]

"UNG has been volatile in recent weeks, as the combination of an uncertain regulatory environment and contradictory fundamental factors have sent prices for the natural gas ETF all over the board."

To say the least, but are we looking in the right places for this volatility? I'm no expert, but it appears from what I have seen in the actual trading and some other articles I've read, that the reasons are a little more sinister then your assumptions. They may be true, but it seems that front runners using flash trading techniques are causing more angst then we are willing to recognize.

Oct 18 08:26 AM

[User 382130:]

Check almost all NG companies and you will see they have shut down well after well to reduce inventory. I agree about Flash Trading

Oct 18 09:13 AM

[alpha99:]

Is too bad that a mere concern to SEC of illegality is not enough.

Oct 18 10:13 AM

[Mr. Twigs:]

UNG has grossly under performed as a natural gas play to the point they should be investigated for fraud. Check out the nat gas prices vs ung over the last months.

Oct 18 01:32 PM

[RicK IL:]

a lot of these ETFs should be investigated. Many are almost inverse to "prospectus" or stated purpose. Would be better to "fade" them!


On Oct 18 01:32 PM Mr. Twigs wrote:

> UNG has grossly under performed as a natural gas play to the point
> they should be investigated for fraud. Check out the nat gas prices
> vs ung over the last months.

Oct 18 05:37 PM

[Scruffy:]

+1 for the flash trading


On Oct 18 08:26 AM apppro wrote:

> "UNG has been volatile in recent weeks, as the combination of an
> uncertain regulatory environment and contradictory fundamental factors
> have sent prices for the natural gas ETF all over the board."
>
> To say the least, but are we looking in the right places for this
> volatility? I'm no expert, but it appears from what I have seen in
> the actual trading and some other articles I've read, that the reasons
> are a little more sinister then your assumptions. They may be true,
> but it seems that front runners using flash trading techniques are
> causing more angst then we are willing to recognize.

Oct 18 10:40 PM

[Mad Hedge F...:]

xho I received another scratchy, crackling cell phone call from my drilling buddy in the Texas natural gas fields today. You could almost hear the dust on the line. The doubling of prices in the last month is totally bogus, and is nothing more than a short covering rally ahead of the seasonally strong run up to winter. Storage facilities are completely full, and while the production cutbacks have been substantial, they are still not enough. Some companies, like Chesapeake (CHK), are even suicidally boosting production in a desperate attempt to offset falling prices with jacked up volumes, at everyone else’s expense. This is all setting up a fabulous short selling opportunity, possible in early December, once the winter draws are priced in. There is still a huge risk that production will overwhelm storage as more new unconventional shale and tight gas deposits are brought on line, leading to another collapse in prices. A retest of the September lows is a gimme, and the $1 handle is still a possibility. So those of you who were nimble enough to bite a hunk out of the recent pop in CH4, better use any strength to cash in positions. I’d love to get more out of my friend, but I don’t think my aged, arthritic back could take another three hours driving down washboard roads in a beat up pickup truck with no springs.

Oct 19 11:38 AM

[Alamo:]

Many Texas school districts are running on compressed natural gas (CNG) or are in the process/planning stage of converting their fleets to CNG. Many municipal and state vehicles are following suit.

With Texas' air the most polluted in the nation that process has become a mandatory public policy and I look for it to continue and expand. With Texas' natural gas production at 25-30 percent of the national production there is no rational basis for doing otherwise.

It appears that the natural gas industry is finally beginning to realize that its worst enemy is "Big Oil". The adverse public opinion that that industry has had for years has been an anchor around the natural gas industry's much cleaner neck. OPEC is going to have to consider the competition that US natural gas reserves represent relative to the world pricing of crude. Going forward, the invariable transition to a US national transportation industry transition to CNG can and will put a serious dent in the current 25 percent of world crude demand that we currently account for.

Bottom line: as more and more school children ride to and from school on CNG powered busses, its just a matter of time before they begin driving CNG cars. Young people, well versed in environmental issues, will readily lead this certain coming change.

Natural gas' future looks bright indeed.

Oct 20 10:56 AM