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Are Energy ETFs Outperforming Crude Oil?

PART:
1 2 3 4 5
Part 3
Are Energy ETFs Outperforming Crude Oil? PART 3 OF 5

Is UNG Outdoing Natural Gas Futures This Week?

UNG’s performance

From April 13–20, 2017, the United States Natural Gas ETF (UNG), which aims to track active natural gas futures, fell 1.8%. Natural gas futures fell 2.1% during the same period. Last week, UNG outperformed natural gas active futures.

Is UNG Outdoing Natural Gas Futures This Week?

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Inventory data

UNG ended April 20, 2017, falling ~0.50%, while natural gas futures fell 0.80%. On that day, the EIA (U.S. Energy Information Administration) announced that natural gas (GASX) inventories rose 54.0 Bcf (billion cubic feet) in the week ended April 14, 2017. A Wall Street Journal survey estimated a rise of 49.0 Bcf. Bearish inventory data contributed to the losses in natural gas prices.

How well does UNG track natural gas futures?

On March 3, 2016, natural gas active futures hit a 17-year low. Natural gas active futures rose 92.6% from March 3, 2016, to April 20, 2017. During that period, UNG rose ~29.9%.

From June 20, 2014, to April 20, 2017, natural gas active futures fell 30.3%, while UNG fell ~70.3%. The nearly two-year downturn in crude oil prices started on June 20, 2014. Crude oil can impact the sentiment in the entire energy sector.

The above numbers show UNG’s lower returns compared to the returns of natural gas active futures. The lower returns were due to the small losses UNG suffered when rolling its exposure to active natural gas futures from expiring futures.

Active futures traded at higher prices than expiring futures contracts in the fund. Due to this contango structure in the natural gas futures market, UNG has underperformed natural gas in the last few years. You should keep this in mind when using UNG to play longer-term moves in natural gas prices. On April 20, 2017, natural gas futures contracts out to August 2017 traded at progressively higher prices.

Natural gas exposure

In addition to the United States Crude Oil ETF (USO), which tracks crude oil futures, and the energy equity ETFs we looked at in the previous part of this series, you might want to look at the following ETFs and ETNs to play natural gas prices:

  • ProShares Ultra Bloomberg Natural Gas (BOIL)
  • First Trust ISE-Revere Natural Gas ETF (FCG)
  • VelocityShares 3x Long Natural Gas ETN (UGAZ)
  • Direxion Daily Natural Gas Related Bull 3X ETF (GASL)

In the next part, we’ll see how oil is affecting Wall Street.

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