Natural Gas ETFs Tumble as Supply Levels Surge - ETF News And Commentary

It has been a pretty wild year for natural gas prices in the United States for a variety of reasons. Prices soared to start the year thanks to a frigid winter which forced many Americans to blast their heat for much of January and February, but milder temperatures lately (and huge supplies of natural gas) have given way to a slide in prices.

In fact, cooler-than-normal temperatures in much of the U.S. for late June have allowed stockpiles to build at a time when cooling demand is usually moving sharply higher across much of the nation. It also doesn't hurt that the fracking boom is still in full-swing and that it has become easier for companies to pull natural gas out of the ground, keeping a lid on prices except in all but the most extreme weather conditions.

This second trend—the one back towards lower prices—has really been prevalent lately, and it was confirmed by the most recent EIA natural gas storage report. In this weekly government release, it was revealed that inventories rose by 110 billion cubic feet, higher than

cubic feet (see

).

This huge supply injection marked the seventh straight week that supplies rose by at least 100 bcf, the longest such streak in at least 20 years. It also helped push total supplies up to 1.829 trillion cubic feet, a significant number, but still far less than the 5 year average of roughly 2.651 trillion cubic feet.

This streak of big supply injections has had a negative impact on natural gas ETFs across the board. The most popular fund in the space, the

, tumbled by 2.7% on the session with volume that was more than two times normal.

Other products, such as

and

, also traded lower, with these two moving, respectively, lower by 1.9% and 3% on the session. And, as is the case with a big move in the natural gas market, the leveraged product space saw wild swings too (also read

).

Triple long

moved lower by 8% while the 2x long product of

slumped by nearly 4.9%. Meanwhile, the short leveraged products were the real winners, as 2x short

added about 5% while the 3x inverse natural gas product

rose by 7.7% on the day.  

However, despite these weak performances, investors should note that a long bet on natural gas ETFs has actually been a pretty good idea this year. UNG is up close to 20% YTD, while both BOIL and UGAZ are holding on to positive performances as well (see

).

It is also worth noting that warmer weather across much of the Northern and Midwest United States is in the forecast over the next week.  Some reports have key cities-- such as Washington D.C. and New York City—at temperatures that are at least seven degrees Fahrenheit above normal for this time of year (read

).

This burst of heat might finally bring that 100 bcf injection streak to a close, and help put a floor back underneath natural gas prices. These trends may be especially true if warm weather sticks around across the U.S. for a bit longer, or if hurricane season threatens to take some of the Gulf Coast supplies off line.

Still, supplies are expected to be robust across the nation as more wells come online and production levels increase. We are already at record output levels, so a bigger transition to natural gas based fuels or greater acceptance of LNG exports will have to happen before prices can really take off.

Either way, the trends are currently looking favorable in the short term for natural gas investors, as the space could maintain some momentum for a bit longer. Just make sure to watch the weather in this volatile, but potentially profitable, corner of the commodity ETF market.

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