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Cold Weather, Supply Concerns Fuel Natural Gas ETFs

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Natural gas futures surged to a two-year high, reflecting increased heating demand and heightened supply concerns. This has led to a spike in natural gas ETFs that deal directly in the futures market. United States Natural Gas Fund (UNG - Free Report) , United States 12 Month Natural Gas Fund (UNL - Free Report) and ProShares Ultra Bloomberg Natural Gas (BOIL - Free Report) gained 8.8%, 6.2% and 17.8%, respectively. 

The strong trend is likely to continue, given the following reasons:

Cold Temperatures Fuel Strong Demand

Recent weather models indicate sustained cold across major U.S. regions through late February. NatGasWeather reports that temperatures could drop as low as -10°F in several areas, intensifying heating demand. This has spurred the need for heating in homes and offices, pushing the demand for natural gas. 

Geopolitical Risks Add to Supply Concerns

Russia’s latest attacks on Ukraine’s energy infrastructure have disrupted gas production in the Poltava region, raising fears of broader supply instability. Ukraine’s state gas operator has implemented emergency measures to stabilize output, but European markets are bracing for potential disruptions.

Additionally, the threat of U.S. tariffs, with President Donald Trump having already called on the EU to purchase more American oil and gas, has been supporting the natural gas price surge (read: Trump, Tariffs, & Trade Wars: What Investors Need to Know). 

LNG Demand Remains Strong

LNG demand has been on an upward trajectory as countries seek cleaner energy alternatives. In Asia, nations like China, Japan and South Korea are increasing LNG imports to support industrial activity and reduce reliance on coal. Meanwhile, in Europe, LNG imports remain high due to ongoing concerns about energy security and reduced pipeline gas supplies from Russia.
According to the International Energy Agency (IEA), global LNG demand is expected to grow by 4-5% annually through 2030. 

Per the latest data, gas flows to the eight major U.S. LNG export terminals averaged 15.2 bcfd in February, up from 14.6 bcfd in January. The metric also surpassed the previous record of 14.7 bcfd set in December 2023.

Declining Inventories

Tight U.S. natural gas supplies are supporting prices. The latest EIA inventory report, released last Thursday, showed that as of Jan. 31, U.S. natural gas stockpiles were 4.4% below the five-year average—their lowest level in more than two years.

EIA Raises Price Forecasts

The Department of Energy’s statistical arm raised its forecast for U.S. natural gas prices in 2025 and 2026, dimming hopes for lower heating costs. The Energy Information Administration (EIA) now expects the benchmark Henry Hub price to average $3.80 per million British thermal units (MMBtu) in 2025, a 21% increase from its previous estimate. For 2026, the agency revised its projection to $4.20 per MMBtu, up from $4 in its January report.

ETFs in Focus

United States Natural Gas Fund (UNG - Free Report)

United States Natural Gas Fund tracks the daily changes in the price of natural gas delivered at the Henry Hub, LA, as measured by the daily changes in the price of UNG’s Benchmark Futures Contract. UNG’s Benchmark Futures Contract is the futures contract on natural gas as traded on the NYMEX, which is the near-month contract that is about to expire.  If the near-month contract is within two weeks of expiration, the Benchmark will be the next month contract to expire.

United States Natural Gas Fund has an AUM of $699.8 million and trades in a volume of 9 million shares per day. UNG has an expense ratio of 1.01% (read: 4 ETF Areas Up At Least 5% Last Week).

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

United States 12 Month Natural Gas Fund seeks daily changes in percentage terms of the price of natural gas delivered at the Henry Hub LA, as measured by the daily changes in the average prices of UNL’s Benchmark Futures Contracts. UNL’s Benchmark Futures Contracts are the futures contracts on natural gas as traded on the NYMEX, which are 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 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. When calculating the daily movement of the average price of the 12 contracts, each contract month is equally weighted.

United States 12 Month Natural Gas Fund has accumulated $16.9 million in its asset base and charges 1.71% in annual fees. The product trades in a moderate average daily volume of 98,000 shares.

ProShares Ultra Bloomberg Natural Gas (BOIL - Free Report)

For investors seeking to play the natural gas spike for outsized profits in a short span, a leveraged bet might be the way to go. ProShares Ultra Bloomberg Natural Gas offers two times the daily performance of the Bloomberg Natural Gas Subindex, which consists of futures contracts on natural gas. BOIL charges 95 bps in annual fees and has amassed $292.9 million in its asset base. BOIL trades in an average daily volume of 3.2 million shares.

Conclusion: A Bullish Outlook for Natural Gas

The combination of rising LNG demand, constrained global supply and geopolitical uncertainty creates a favorable backdrop for natural gas prices.

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