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Natural gas prices recently soared to their highest levels in two years, fueled by extreme weather conditions, supply constraints, record liquefied natural gas (LNG) exports and geopolitical tensions. However, record output and a weaker-than-expected storage draw led to a decline in natural gas prices over the past couple of days.
The latest EIA storage report showed a net withdrawal of 80 billion cubic feet for the week ending Feb. 28, falling short of expectations for a draw of 92-94 billion cubic feet. The market sentiment was also hit by U.S. President Donald Trump's temporary suspension of tariffs on most goods coming from Canada until April 2.
Natural gas price is currently trading above the $4.60 per million British thermal units (MMBtu) level. ETFs tracking natural gas prices have been surging since the start of the year. 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) have gained 35.4%, 27.5% and 73.1%, respectively, so far.
Will the solid trend continue? Let’s dig into the details.
Weather Conditions
Bitter cold has driven up heating demand, pushing natural gas consumption higher. Freezing temperatures have caused “freeze-offs,” where frigid temperatures disrupt production, temporarily halting gas extraction. Meteorologists forecast mostly warmer-than-normal conditions between March 6 and 15 and predominantly colder-than-normal temperatures from March 16 to 21.
Supply Concerns
Russia, one of the world’s biggest energy producers, is subject to a wide range of sanctions imposed by the United States and its partners after its invasion of Ukraine in February 2022. President Donald Trump said that he is "strongly considering" imposing sanctions on Russia until a ceasefire and peace agreement is reached with Ukraine.
Further, the imposition of tariffs on Canada could see a major disruption of gas supply into the United States. Canada is a major supplier of the United States’ annual natural gas imports (read: Volatility ETFs Spike on Growing Trade War Fears).
LNG Demand
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.
Declining Inventories
Tight U.S. natural gas supplies are supporting prices. Higher-than-average withdrawals have depleted storage inventories in both the United States and Europe, raising concerns about potential shortages. Replenishing these stockpiles could take longer than usual, especially if winter conditions persist or production remains constrained.
As of Feb. 28, natural gas inventories were about 11.3% below their 5-year average and near the tightest supplies have been in over 2-1/2 years.
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 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 contracts 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's 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 $18.2 million in its asset base and charges 1.71% in annual fees. The product trades in a moderate average daily volume of 90,000 shares.
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 $293.1 million in its asset base. BOIL trades in an average daily volume of 3 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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Can Natural Gas ETFs Sustain Their Rally?
Natural gas prices recently soared to their highest levels in two years, fueled by extreme weather conditions, supply constraints, record liquefied natural gas (LNG) exports and geopolitical tensions. However, record output and a weaker-than-expected storage draw led to a decline in natural gas prices over the past couple of days.
The latest EIA storage report showed a net withdrawal of 80 billion cubic feet for the week ending Feb. 28, falling short of expectations for a draw of 92-94 billion cubic feet. The market sentiment was also hit by U.S. President Donald Trump's temporary suspension of tariffs on most goods coming from Canada until April 2.
Natural gas price is currently trading above the $4.60 per million British thermal units (MMBtu) level. ETFs tracking natural gas prices have been surging since the start of the year. 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) have gained 35.4%, 27.5% and 73.1%, respectively, so far.
Will the solid trend continue? Let’s dig into the details.
Weather Conditions
Bitter cold has driven up heating demand, pushing natural gas consumption higher. Freezing temperatures have caused “freeze-offs,” where frigid temperatures disrupt production, temporarily halting gas extraction. Meteorologists forecast mostly warmer-than-normal conditions between March 6 and 15 and predominantly colder-than-normal temperatures from March 16 to 21.
Supply Concerns
Russia, one of the world’s biggest energy producers, is subject to a wide range of sanctions imposed by the United States and its partners after its invasion of Ukraine in February 2022. President Donald Trump said that he is "strongly considering" imposing sanctions on Russia until a ceasefire and peace agreement is reached with Ukraine.
Further, the imposition of tariffs on Canada could see a major disruption of gas supply into the United States. Canada is a major supplier of the United States’ annual natural gas imports (read: Volatility ETFs Spike on Growing Trade War Fears).
LNG Demand
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.
Declining Inventories
Tight U.S. natural gas supplies are supporting prices. Higher-than-average withdrawals have depleted storage inventories in both the United States and Europe, raising concerns about potential shortages. Replenishing these stockpiles could take longer than usual, especially if winter conditions persist or production remains constrained.
As of Feb. 28, natural gas inventories were about 11.3% below their 5-year average and near the tightest supplies have been in over 2-1/2 years.
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 $501.6 million and trades in a volume of 9 million shares per day. UNG has an expense ratio of 1.01% (read: Trade War Fears Surge: Sector ETFs & Stocks to Watch Out For).
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 contracts 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's 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 $18.2 million in its asset base and charges 1.71% in annual fees. The product trades in a moderate average daily volume of 90,000 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 $293.1 million in its asset base. BOIL trades in an average daily volume of 3 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.