Weakness Continues Across The Natural Gas Strip As Weather Turns Warmer And Demand Lightens

|
Includes: BOIL, DGAZ, KOLD, UGAZ, UNG
by: Andrei Evbuoma
Summary

Natural gas prices points towards a second consecutive day of losses.

Downside risk continues for UNG as injection season strengthens.

Triple digit inventory build is expected in the weeks ahead.

Investment Thesis - Investors: Look for an entry point, natural gas prices are a bargain

As the market continues to seek a bottom, prices are becoming more and more attractive. With summer coming, bullish investors should be looking into taking advantage of prices which are at a bargain now.

Warmer weather outlook to give way to massive injection in the coming weeks

Selling pressure continues for a second day in a row as the market continues to price in the warmer weather outlook mid-late April and thus lighter national demand. Inventory builds in the coming weeks should approach if not surpass the triple digit mark. The front-month May futures contract pulled back an additional 2 cents (0.62%) to $2.57, as did the June contract which slipped to $2.61. Figure 1 below is a chart showing the price trend of NYMEX's front-month May futures contract over the past 7 days.

Source: Investing.com

The United States Natural Gas ETF (NYSEARCA:UNG), which is the unleveraged 1x ETF that tracks the price of natural gas, closed Tuesday lower 0.61% to $22.66.

The VelocityShares 3x Long Natural Gas ETN (NYSEARCA:UGAZ) and the ProShares Ultra Bloomberg Natural Gas ETF (NYSEARCA:BOIL) slid an additional 2% and 1.08% to $25.95 and $19.14, respectively. Meanwhile, the VelocityShares 3x Inverse Natural Gas ETN (NYSEARCA:DGAZ) and the ProShares UltraShort Bloomberg Natural Gas ETF (NYSEARCA:KOLD) increased another 2% and 1.23% to $118.54 and $23.91, respectively. Figure 2 below is a chart showing the price trend of DGAZ over the past month.

Source: Investing.com

Forecast models continue to show some mixed signals in terms of the precise location and extent of temperatures, but overall is still indicating a seasonable to unseasonably warm pattern in the 10-16 days. Figure 3 below is a comparison between the 12z GFS, ECMWF, and CMC's 10-16 day temperature outlook.

Source: WeatherBell

Disclosure: I/we 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 (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.