Different approaches to natural gas
Natural gas futures increased by 9.07% between Friday, June 5, and Thursday, June 11. For retail investors, who don’t have easy access to the futures market, there are safer, low-cost avenues to bet on natural gas prices.
The first option is the United States Natural Gas Fund (UNG)—an ETF that tracks prompt natural gas futures. UNG shares trade on the NYSE like a company stock. They gained 9.09% last week.
The second option is an ETF like the SPDR S&P Oil & Gas Exploration & Production ETF (XOP), which holds many US energy companies. Many of these energy companies have exposure to natural gas prices due to their upstream (gas production) operations. So, because of the indirect exposure to volatile natural gas prices, an ETF like XOP is a safer, more diversified option for more conservative investors. But XOP rose just 0.4% last week.
As we can see in the graph above, natural gas and UNG had a great week. UNG tracked returns from natural gas. However, as we discussed in the last part of this series, natural gas fell later in the week but remained higher than the previous Friday’s levels. This was also the case for UNG.
XOP underperformed both NG and UNG throughout the week. It also ended on Thursday with lower returns compared to both natural gas and UNG. Its lower returns were because of XOP’s indirect exposure to natural gas prices and because XOP also includes companies with exposure to crude oil prices, which were volatile last week. Follow our weekly recap of crude oil prices on our Energy and Power page.