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UNG Underperforms Natural Gas Prices

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UNG ETF

The United States Natural Gas Fund LP ETF (UNG) tracks the performance of futures contracts of NYMEX-traded natural gas prices. UNG declined by 1.28% and closed at $13.86 on Wednesday, June 17. It has assets worth $690.7 million. It has an average monthly volume of 6.8 million. UNG is the largest natural gas ETF. It has an expense ratio of 0.60%.

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UNG rollover

Natural gas futures are in a contango market. This means spot natural gas prices are trading lower than natural gas futures contracts. In the futures market, August natural gas futures contracts are trading higher than July natural gas futures. The spread between them is at $0.039. This means when natural gas futures rollover, UNG has to buy expensive next month futures contracts. This process of buying expensive futures contracts in a contango market impacts UNG’s performance. UNG declined 11.83% YTD (year-to-date)—compared to natural gas futures’ 5.43% decline. So, UNG underperforms in a contago market.

Likewise, natural gas prices have been underperforming due to oversupply concerns over the last year. Lower natural gas prices have impacted oil and gas producers like Energy EXXI (EXXI), Exco Resources (XCO), and Range Resources (RRC). They account for 4.04% of the Spider Oil and Gas ETF (XOP). They also have a gas production mix that’s greater than 45% of their total production.

Oil and gas ETFs like the Energy Select Sector SPDR ETF (XLE) and XOP also mirrored the price direction of natural gas and crude oil prices. They fell slightly yesterday.

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