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Natural Gas ETFs Surge on Hot Summer Weather

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Natural gas price has been surging lately on hot weather forecast for the summer season. According to National Oceanic and Atmospheric Administration, the weather is expected to remain warmer than normal over most of the West Coast and mid-West over the next 8-14 days, propelling demand for air conditioning.

An intense hot weather will spur cooling demand in homes and business, and ease pressure on storage injection levels, bolstering natural gas prices. Energy demand is also on the rise as global economies are on track for a speedy recovery on the wider reach of vaccinations and massive stimulus. Additionally, soaring global gas prices are prompting buyers from around the world to continue purchasing all the liquefied natural gas (LNG) that the United States is producing (read: Here's Why You Should Bet on Energy ETFs Now).

Further, an increase in LNG export demand is adding to the strength and will likely to do so for the rest of the year. This is because LNG exports are expected to soar this year given the higher demand in Asia and Europe. Recovering natural gas consumption around the world is also driving the natural gas price higher.

Given the bullish fundamentals, investors should tap this trend with lower risk using the ETFs. These ETFs might be easier plays for investors seeking to deal directly in the futures market:

United States Natural Gas Fund (UNG - Free Report)

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 $268.7 million and trades in volume of around 2 million shares per day. The fund has 1.35% in expense ratio and has surged 2.7% in a week (see: all the Energy ETFs here).

United States 12 Month Natural Gas Fund (UNL - Free Report)

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 $10.7 million in its asset base and charges 90 bps in annual fees. The product trades in a paltry average daily volume of 18,000 shares and has gained 2.9% in a week.

iPath Bloomberg Natural Gas Subindex Total Return ETN (GAZ - Free Report)

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 $4.3 million and an average daily volume of 2,000 shares. Expense ratio comes in at 0.75%. GAZ has added 2.7% over the past week.

ProShares Ultra Bloomberg Natural Gas (BOIL - Free Report)

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 $64.4 million in its asset base. The ETF has jumped 5% in a week (read: Bet on Energy Sector With Leveraged ETFs).

Bottom Line

If the hot weather continues, demand for fuel for cooling purposes will likely grow and could lower the huge stockpiles of natural gas, pushing the price upward. As a result, investors could definitely tap the surge in natural gas price with the above-mentioned ETFs provided the weather turns hotter in the weeks ahead.

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