ETFs to Tap on Soaring Natural Gas Price
Natural gas futures spiked to a seven-year high buoyed by the growing concerns over tight winter supplies as well as the expiration of October options...
Natural gas futures spiked 11% to a seven-year high on the Sep 27 trading session buoyed by the growing concerns over tight winter supplies as well as the expiration of October options. Traders were closing out bearish positions ahead of the expiration of October options and futures this week.
Per one source, the weather is expected to remain warmer than average throughout most of the United States during the next two weeks. Warm weather will spur cooling demand in homes and business, bolstering natural gas prices. Energy demand is also on the rise as global economies are improving on the wider reach of vaccinations and massive stimulus (read: Play the Rising Energy Sector With These Leveraged ETFs).
Additionally, soaring global gas prices are prompting buyers from around the world to continue purchasing all the liquefied natural gas that the United States is producing. An increase in LNG export demand will likely continue given the higher demand in Asia and Europe.
A rebound in natural gas consumption around the world has also added to the strength. Demand is expected to rise further this year if governments do not implement strong policies to move the world onto a path toward net-zero emissions by mid-century, according to a new report by the International Energy Agency. The agency expects global gas demand to rise 3.6% in 2021 before easing to an average growth rate of 1.7% over the following three years. By 2024, demand is forecast to be up 7% from 2019’s pre-COVID-19 levels.
Citigroup believe that global natural gas prices may continue to rise in the coming months, citing strong demand and tightening supply market conditions, and that any sudden increase in demand or a supply disruption may push prices further upward.
Investors could easily tap the soaring natural gas price with ETFs that deal directly in the futures market:
United States Natural Gas Fund UNG
The fund provides direct exposure to the price of natural gas on a daily basis through futures contracts. If the near month contract is within two weeks of expiration, the benchmark will be the next month contract to expire. It has AUM of $287.6 million and trades in volume of around 3.7 million shares per day. The fund has 1.35% in expense ratio and jumped 12.3% on the day (read: Natural Gas ETFs Heat Up on Supply Crunch Ahead of Winter).
United States 12 Month Natural Gas Fund UNL
This product seeks to offer natural gas exposure without using a commodity futures account. The investment objective of UNL is to reflect the daily changes in the price of natural gas delivered at the Henry Hub Louisiana. Its benchmark is the near month futures contract to expire and the contracts for the following 11 months, for a total of 12 consecutive months. If the near month futures contract is within two weeks of expiration, the benchmark will be the next month contract to expire and the contracts for the following 11 consecutive months. UNL has accumulated $14.5 million in its asset base and charges 90 bps in annual fees. The product trades in a paltry average daily volume of 16,000 shares and gained 8.3% on the day.
iPath Bloomberg Natural Gas Subindex Total Return ETN GAZ
The note provides exposure to the Bloomberg Natural Gas Subindex Total Return, which consists of the contract in the Bloomberg Commodity Index Total Return that relates to natural gas. The product is unpopular and illiquid with AUM of $9.8 million and an average daily volume of 9,000 shares. Expense ratio comes in at 0.75%. GAZ soared 12.6% on the day.
ProShares Ultra Bloomberg Natural Gas BOIL
For investors seeking to play on the natural gas spike for outsized profits in a short span, a leveraged bet might be a way to go. BOIL offers two times (2X) the daily performance of the Bloomberg Natural Gas Subindex. It charges 95 bps in annual fees and has amassed $74.7 million in its asset base. The ETF trades in average daily volume of 701,000 shares and jumped 25% on the day (read: 5 ETF Areas Stood Strong Amid Last Week's Market Carnage).
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iPath Series B Bloomberg Natural Gas Subindex Total Return ETN (GAZ): ETF Research Reports
United States 12 Month Natural Gas ETF (UNL): ETF Research Reports
ProShares Ultra Bloomberg Natural Gas (BOIL): ETF Research Reports
United States Natural Gas ETF (UNG): ETF Research Reports
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