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Summary

  • Mild weather weighing on natural gas prices.
  • Rising natgas production.
  • Inverse, bearish natural gas ETFs soaring.

Natural gas prices have plunged to about an eight-month low as temperate weather conditions keep Americans from reaching for the A/C. Meanwhile, related exchange traded funds that take a bearish stance on the market are surging on the falling prices.

The VelocityShares Daily 3x Inverse Natural Gas ETN (NYDGAZ), which seeks to provide the daily inverse 3x, or -300%, performance of the NYMEX natural gas futures, has increased 51.8% over the past three months while the ProShares UltraShort Bloomberg Natural Gas (NYKOLD), which provides the daily inverse 2x, or -200%, performance of natural gas futures, has gained 36.2%.

In contrast, the United States Natural Gas Fund (NYUNG) has declined 17.2% over the past three months.

NYMEX natural gas futures are down 3.0% Monday, trading around $3.83 per million British thermal units, their lowest since around November, reports Daniel Huang for the Wall Street Journal.

Analysts point to the cooler-than-average temperatures this summer, which could extend into the beginning of August, in a period typically regarded as the hottest in the season as the main factor weighing on natural gas markets.

According to the Commodity Weather Group, temperatures may remain near average or below normal in the eastern half of the U.S. through Aug. 4, Bloomberg reports.

"We're seeing some cool weather on the East Coast in the 10-day forecasts," Bob Yawger, director of the futures division at Mizuho Securities USA Inc., said in the Bloomberg article. "We've had some pretty big storage numbers that have been leaning on prices."

Meanwhile, on the supply side, marketed gas output could rise 4.1% to an all-time high of 73.08 billion cubic feet this year, according to the Energy Information Administration. Stockpiles could rise to 3.43 trillion cubic feet by the end of October, but it will still be the least amount in storage since 2008.

According to the CME Group, natural gas futures are trading in a slightly contangoed market where near-term contracts trade at lower prices to later-dated contracts. Contango can weigh on natural gas ETFs, like UNG, that roll near-term contracts, or sell futures that are about to mature for a lower price and buy the next month contract at a higher price.

VelocityShares Daily 3x Inverse Natural Gas ETN

(click to enlarge)

For more information on the natural gas market, visit our natural gas category.

Max Chen contributed to this article.

Source: Long Natural Gas ETFs Burning Out