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Natural Gas ETFs Spike on Storm Threat and Tight Supply

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Natural gas futures rallied to their highest level since late 2018 on Aug 26 driven by hurricane threats and tightening supplies.

Per the Natural Gas Intelligence reports, a storm in the Atlantic, dubbed Tropical Depression Nine, is expected to strengthen over the next 48 hours and could potentially threaten coastal states along the Gulf of Mexico over the weekend. The hurricane is expected to enter into the Gulf of Mexico Friday night and move northwestward toward the central or northwestern U.S. Gulf Coast, potentially bringing dangerous impacts from storm surge, wind and heavy rainfall to portions of the coasts of Texas, Louisiana, Mississippi, Alabama and the Florida Panhandle by Sunday and Monday. This will likely disrupt oil and natural-gas operations in the region.

Meanwhile, the latest data from the U.S. Energy Information Administration shows that domestic supplies of natural gas jumped 29 billion cubic feet to 2.851 trillion cubic feet for the week ended Aug 20. It was smaller than the average increase of 37 billion cubic feet expected by analysts polled by S&P Global Platts. A lower-than-projected injection level has spread bullishness in this commodity space (see: all the Energy ETFs here).

Rebound in natural gas demand 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.

Given this, natural gas ETFs are on surge. Investors could easily tap the bullish fundamentals with these funds that 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 $260.9 million and trades in volume of around 2.2 million shares per day. The fund has 1.35% in expense ratio and has jumped 6.9% on Aug 26.

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 $10.9 million in its asset base and charges 90 basis points (bps) in annual fees. The product trades in a paltry average daily volume of 9,000 shares and has gained 4.4% on the day (read: Natural Gas ETF Hits New 52-Week High).

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 $5.9 million and an average daily volume of 4,000 shares. Expense ratio comes in at 0.75%. GAZ has gained 6.4% on the day.

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 $51.9 million in its asset base. The ETF has jumped 12.5% on the day.