I received some interesting comments on my previous articles that I would like to address. I thank you for the feedback and commentary.
First, since approximately half of US homes are still heated by heating oil, the price of oil is very much a consideration for that market. Currently, natural gas offers a dramatic cost reduction to heat a home and that will continue to drive the switch from heating oil to gas and will therefore continue to drive natural gas demand.
It is unlikely that natural gas fueled vehicles will become a material user of natural gas any time in the near future. Most of the demand for natural gas will come from residential heating though increasingly additional demand is coming from both railroad engines and truck fleets which are also making the shift.
Second, though it is extremely difficult to predict the weekly inventory numbers, one can use the volatility caused by those numbers to trade around one's position since the reaction to those numbers tends to be exaggerated and of short duration. So, for example, given my long bias, when a number comes out and the price of natural gas goes down significantly, I will look to add to positions and conversely, like this past week, when the number comes out and the price of natural gas spikes dramatically, I will look to lighten up and wait to buy back on future dips.
Finally, though there are some technical issues like contango, rolling costs and fees that do reduce the pure play aspects of the natural gas ETFs, the moves in the ETFs are so significant that it makes these issues rounding errors. Just examine the trading ranges of both (NYSEARCA:UNG) and (NYSEARCA:UGAZ) over the last few years to see that if you are on the right side of the trades and of the investment then these technical issues are of no significance. Additionally, the stocks of the natural gas companies and producers do not move with anywhere near the same volatility and range as do the pure play ETFs so there really are no other pure play alternatives.
Disclosure: I am long UGAZ, UNG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.