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Natural Gas ETFs Heat Up on Supply Crunch Ahead of Winter

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Like in most winters, natural gas prices started receiving warmth from the chills this year. We are entering the winter heating season with natural gas storage down about 7.2% from the five-year average. Per EIA, natural gas inventory was 16.8% lesser than the year-ago level.

Normally, Arctic Chills give life to this commodity every winter. The cold snap boosts electricity demand across the region, putting focus on natural gas. This year too, forecasts of colder-than-expected temperatures in the United States might drive natural gas prices higher. U.S. natural gas futures have now spurted to a seven-year high due to supply crunch heading into the winter-heating season.

In the U.S. sector of the Gulf of Mexico, about 78% of gas production came to a halt for more than a week as offshore crews escaped to safety ahead of Hurricane Ida’s arrival. “The premium for March 2022 gas over April futures -- essentially a bet on how undersupplied the market will be at the end of next winter -- surged as much as 27%,” per a Bloomberg article.

Demand for the fuel is rising in the United States West amid a heat wave that has boosted the consumption of electricity to meet the cooling demand. European prices too are in the midst of a record-setting jump, Bloomberg article noted.

“We’re probably going to go into this coming winter, just the way things were already setting up, with the lowest level of gas in storage since 2014,” said John Kilduff, founding partner of Again Capital LLC, as quoted on Bloomberg.

ETFs in Focus

An ETF tracking natural gas futures, namely, United States Natural Gas Fund (UNG - Free Report)  added about 5.6% in the past five days (as of Sep 8, 2021). Investors can also take a look at United States 12 Month Natural Gas (UNL - Free Report) which added 5.3% in the past five days and leveraged natural gas ETF ProShares Ultra Bloomberg Natural Gas (BOIL - Free Report)  tacked on 10.9% gains (see all energy ETFs here).

For those who are doubtful of the risky futures contracts, it is worth noting that there is an equity play out there that targets the broad natural gas market in ETF form. The fund is the First Trust ISE Revere Natural Gas Index Fund (FCG - Free Report) , an ETF that holds about 40 stocks in its basket and charges investors 60 basis points a year in fees. The fund charges 4.5% in the past five days.