A natural gas exchange traded fund is heating up, with hedge funds increasing long bets on the commodity, as a wintry blast hits the U.S.
The U.S. Natural Gas Fund (UNG) surged 20.2% over the past month and rose 15.3% year-to-date.
NYMEX natural gas futures were up 1.5% Monday, trading around $4.48 per million British thermal units.
Hedge funds are betting on rising prices, raising net-long positions by 33% in the week ended Dec. 17, reports Naureen S. Malik for Bloomberg. Overall, bullish bets are rising for a fourth straight week and to a six-month high.
Natural gas prices, a major source of energy for home heaters, are steadily increasing as below-average temperatures gripped the lower 48 states and a snowstorm dropped as much as 18 inches across the Midwest to the Northeast. According to the Energy Information Agency, 49% of U.S. households use natural gas for heating.
"Wall Street has been throwing a lot of money at this market," Stephen Schork, president of Schork Group Inc., said in the article. "It's been aided by some very cold December weather. The forecasts are calling for some cold during the remaining winter."
The EIA revealed that stockpiles declined by a larger-than-expected 285 billion cubic feet last week, the largest decline on record for data going back to 1994, compared to the five-year average drop of 133 billion.
"The bulls are coming out of the woodwork here," Phil Flynn, senior market analyst at Price Futures Group, said in the article. "We hadn't really seen that in natural gas; people had been somewhat averse to the belief in higher prices because of the record production."
The natural gas ETF UNG tracks Nymex natural gas futures and rolls contracts over from month to month, so the fund is susceptible to the shape of the futures curve. Specifically, when longer-dated contracts are more costly than near-term contracts, the ETF could see some pressure when rolling futures.
U.S. Natural Gas Fund
Max Chen contributed to this article.