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UNL: Capture The Seasonal Change In Gas Fundamentals

QuandaryFX profile picture


  • Natural gas fundamentals are at a key inflection point as demand is rising while production is collapsing.
  • UNL has strongly outperformed its sister fund, UNG, due to broad exposure across the curve.
  • UNL is likely going to continue performing as backwardation is priced into the gas markets.

Over the past month, the United States 12 Month Natural Gas Fund (NYSEARCA:UNL) has had some downside on a general decrease in natural gas, as seen in the momentum table from Seeking Alpha.

It is my belief that natural gas fundamentals are poised to switch based on both supply and demand factors in the immediate future. Specifically, I believe that natural gas will rise throughout the rest of this year and that UNL represents a strong way to play the move.

Natural Gas Fundamentals

From a fundamental standpoint, this year has been difficult for the gas bulls. We started the year off with very poor total consumption due to a mild winter.

And continued the trend of poor demand through the past few weeks as the coronavirus has slowed industrial demand for the commodity.

If that weren’t enough, natural gas supply continued to rise (through the first quarter at least) as production marched higher.

This combination of fundamentals resulted in weekly builds which were above-normal throughout most of this year.

And these builds ultimately pressured gas prices lower.

When you examine the actual pattern of inventory builds, the case has been even more bearish as key demand centers like the East and South-Central have seen inventories pushing towards the top of the 5-year range.

Without a doubt, this has been one of the most bearish years on record for natural gas traders, and investors in UNL have felt the impact as seen by substantial volatility in the ETF.

However, if you’ve been watching short-term fundamentals, you’ve likely noticed that we are reaching an inflection point. That is, prices have simply been too low for too long and producers are culling production.

Over the last year, about 60% of the total gas rig count has been pulled from the field. There is a lag

This article was written by

QuandaryFX profile picture
I work within the trading and money management industry. I have been trading and investing for several years. My style is technical execution with a fundamental thesis in place. I rely heavily on statistical analysis of the correlations between fundamental changes and price movements for generating most ideas.

Analyst’s 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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