Natural Gas Overbought?

Includes: DBO, GAZ, OIL, UNG, USL, USO
by: World Market Pulse

Not only did U.S. natural gas futures ended higher on Monday, with cold weather forecasts for the eastern half of the nation for the next two weeks, cold weather is expected to continue to tighten energy supply margins in Europe as below average temperatures across the continent have lifted gas and power demand. According to weather forecaster Meteorlogix, temperatures in Europe's main energy markets are set to drop again from the end of this week, with northwest Europe set to see the mercury fall 2-7 degrees Celsius below average. The ongoing cold has lifted the European heating oil demand, helping to push gas oil futures to a 26-month high on Monday.

Although climate experts say Britain is due to see milder weather towards the end of this week, forecasts point to temperatures sliding below average again in two weeks, which brings a sense of uncertainty in natural gas and oil prices. Thomson Reuters recently quoted a Houston-based analyst as saying that the weather is driving price but the rig count is still way above what it was last year, and technically the market is getting overbought. What cold climate conditions have ensured is that the price of natural gas has been on an upswing despite concerns about a weak economy and an increasing supply.

Tracing Rough European Weather. Meanwhile in France, electricity prices for next week jumped by 15 euros to 80.00 euros per megawatt-hour as weather forecasts showed the return of a cold snap. In Britain, the demand for gas was nearly one quarter, or 85.7 million cubic meters, above consumption normally seen a this time of the year, as temperatures were forecast below freezing point in most parts of the country. The rising gas prices are not only limited to the countries facing the cold. German power prices have risen in the spot market not so much because of the cold weather in Germany but because the cold has lifted demand in neighboring countries such as France, the Netherlands and the Czech Republic, which have turned to Germany for purchases. While most European nations face tough supplies due to climate related issues, Italian gas supply has been precarious mainly because of the Transitgas pipeline shutdown, which sent gas from northern Europe via Switzerland into Italy.

Natural Gas ETFs

United States Natural Gas Fund LP (NYSEARCA:UNG):
The investment objective of UNG is for the changes in percentage terms of the units' net asset value to reflect the changes in percentage terms of the price of natural gas, as measured by the futures contract on natural gas traded on the New York Mercantile Exchange that is the near month contract to expire, except when the near month contract is within two weeks of expiration, in which case it will invest in the next month to expire, less UNG's expenses.
Expense Ratio: 1.16%

iPath DJ-UBS Natural Gas Total Return Sub-Index (NYSEARCA:GAZ): The index includes the contract in the Dow Jones-UBS Commodity Index Total Return that relates to a single commodity, natural gas (currently the Henry Hub Natural Gas futures contract traded on the NYMEX).
Expense Ratio: 0.75%

Oil ETFs

United States Oil Fund (NYSEARCA:USO): The investment objective of USO is for changes in percentage terms of the units' net asset value to reflect the changes in percentage terms of the spot price of light, sweet crude oil.
Expense Ratio: 0.80 percent.

United States 12 Month Oil (NYSEARCA:USL): The investment objective of USL is to have the changes in percentage terms of the units' net asset value reflect the changes in percentage terms of the price of light, sweet crude oil.
Expense Ratio: 0.86 percent.

PowerShares DB Oil Fund (NYSEARCA:DBO):
The index is rules-based and composed of futures contracts on light, sweet crude oil.
Expense Ratio: 0.50 percent.

The iPath S&P GSCI Crude Oil Total Return Index ETN (NYSEARCA:OIL): The index reflects the returns that are potentially available through an unleveraged investment in the West Texas Intermediate crude oil futures contract plus the treasury bill rate of interest that could be earned on funds committed to the trading of the underlying contracts.
Expense Ratio: 0.75 percent.

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

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