By Jared Cummans
After a punishing four year run, it looks as though natural gas futures may be ready to cross into the black for 2012. NG had been a very popular short for many investors since 2008, as its price cratered following the recession. Abundant resources and improved technology were among the culprits that turned natural gas into one of the cheapest fossil fuels around. That negative momentum carried through into 2012, but was stopped short as NG was determined to finish the year on a strong note.
Low prices and a supply surplus forced many major companies to switch to oil exploration as opposed to doing the same for gas. "Last April about half of the nation's 1,800 or so drilling rigs were looking for oil while half were looking for gas, according to IA. By this May over twice as many were looking for oil, and EIA has reported recent natural gas production numbers slightly below levels seen at the end of last year," writes Steve Hargreaves.
But the bearish trend for NG was cut short this year, as the U.S. experienced its hottest summer since before the 20th century, as long as records have been kept of such a statistic. With searing heat claiming most of the country, demand for natural gas-powered appliances surged as air conditioning became a must for a number of people across the country. NG dropped around 45% to start of the year, but after going on a tear starting in May, futures are down less than 5% for 2012. As this ultra-popular commodity looks to turn positive for the year, we outline three ETFs to keep a close eye on for anyone interested in trading this asset.
- United States Natural Gas Fund (UNG): The staple ETF for natural gas futures, UNG is among one of the most popular commodity ETFs in the world. The fund currently holds about $1.1 billion in assets and trades more than 10 million times each day. It should be noted that UNG will experience tracking error that can often be significant; exemplified by UNG's -18% YTD performance versus the commodity it tracks.
- E-TRACS Natural Gas Futures Contango ETN (GASZ): This is an ETN that does not get nearly the attention it deserves. The fund has a unique strategy that goes long in longer dated contracts while shorting those with a near-term maturity, allowing it to profit from the contango that NG often exhibits. GASZ is currently up over 3% on the year [see also Which Natural Gas ETF Is Right For You? UNG vs. GASZ vs. GAZ].
- ISE-Revere Natural Gas Index Fund (FCG): For those looking to make a play on NG producers, FCG demands a closer look. The fund tracks an equal weighted index that holds a number of significant players in the space. The ETF currently has more than $430 million in total assets and is down a little more then 3% this year.
Disclosure: No positions at time of writing.