Natural Gas: Finally A Winning Bet

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 |  Includes: FCG, GAZ, UNG
by: Tom Lydon

Summary

This year has been far more kind to natural gas bulls.

A hot summer and another cold winter could support natural gas.

Natural gas equity ETF plays also strengthening on improved gas prices.

By Todd Shriber & Tom Lydon

A five-year chart for the United States Natural Gas Fund (NYSEARCA:UNG) is not a pretty picture. Marred by multiple reverse splits and surging supplies thanks to the fracking boom, UNG has plunged 75% over the past five years.

This year has been far more kind to natural gas bulls. UNG is up nearly 26% year-to-date after one of the coldest winters in recent memory sent natural gas prices soaring. UNG and the iPath Dow Jones-UBS Natural Gas Total Return Sub-Index ETN (NYSEARCA:GAZ) rank as the third- and fourth-best non-leveraged ETFs this year.

More upside for UNG and GAZ could be on the way. Naureen S. Malik reports for Bloomberg:

Inventories are 54 percent below the five-year average, the U.S. Energy Information Administration said last week.

There is now a supply shortage of natural gas, one that will require more record production to stem the shortfall by October, according to Bloomberg.

That means natural gas could rally in the coming weeks if expectations of a warm summer increase. After the the coldest winter in 32 years forced Americans to burn through almost 3 trillion cubic feet of natural gas, market observers are looking toward the summer injection period and next winter. Stockpiles of up to 3 trillion cubic feet will be required to have the U.S. prepared for next winter.

Data from the Commodities Futures Trading Commission indicate speculators have been upping their bullish wagers on natural gas futures contracts.

Traders have also been increasingly bullish on natural gas-related equities. The First Trust ISE-Revere Natural Gas Index Fund (NYSEARCA:FCG) is the top-performing non-leveraged sector ETF over the past month. Up 11.5% since March 21, FCG is trading at its highest levels in nearly three years, enjoying a renaissance of sorts along with natural gas futures and other equity-based energy ETFs. Investors are noticing. When we profiled the ETF on April 11, FCG had just over $458 million in assets under management. The fund now has nearly $500 million in AUM.

Exxon Mobil (NYSE:XOM), the largest U.S. natural gas producer, is not found among FCG's 30 holdings while Chesapeake Energy (NYSE:CHK), the second-largest U.S. gas producer, is just 3.4% of the fund's weight.

United States Natural Gas Fund

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.