Natural gas prices hit the highest level since December 2011 during early morning trading, with the United Sates Natural Gas Fund (UNG) hitting its highest level since January 2012. The rally in natural gas the last week is due to a forecast early autumn heating season stoking demand.
Prices for natural gas ran as high as $3.647 per million British thermal units (BTU), as bulls speculate on colder weather approaching sooner rather than later in the U.S.
Reports from EnergyCast indicated last Friday that colder weather is starting across much of the U.S. and is forecast for the next two weeks. As a Floridian, I know for the first time since January I had my windows open over the weekend.
Other weather reports suggest a shift in the weather pattern is occurring earlier, providing cooler weather across roughly two-thirds of the country.
Natural gas bulls are excited. Prices typically see a low in the October season as relief from hot summer weather gives way to milder weather, reducing natural gas demand. Demand typically returns in the winter months when building heating spikes the price.
Market participants are monitoring strong U.S. inventory levels for natural gas with last week’s total usage 5% above last year, and over 7% above the five-year average. This Thursday’s EIA inventory results will be closely watched by traders, as it could point to a bull rally.
You can play a potential natural gas rally through the following ETFs:
The United States 12 Month Natural Gas Fund ETF (UNL). According to Yahoo Finance the fund:
Seeks to reflect the changes, net of expenses, of the spot price of natural gas delivered at the Henry Hub, Louisiana, as measured by the changes in the average of the prices of 12 futures contracts on natural gas traded on the NYMEX. The fund will consist of the near month contract to expire and the contracts for the following eleven months, for a total of 12 consecutive months contracts, except when the near month contract is within two weeks of expiration, in which case it will be measured by the futures contract that is the next month contract to expire and the contracts for the following eleven consecutive months.
The United Sates Natural Gas Fund ETF (UNG). According to Yahoo Finance the fund:
Seeks to replicate the performance, net of expenses, of natural gas. The trust will invest in futures contracts on natural gas traded on the NYMEX that is the near month contract to expire.
Bottom line: The early start of cooler weather with the possibility of even colder weather soon is bullish for natural gas futures.