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Natural Gas Rises Last Week: UNG Up, but XOP Stays Flat

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Different approaches to natural gas

As we saw in the previous part of this series, natural gas rose ~1.05% between Friday, September 4, and Thursday, September 10. For retail investors who don’t have easy access to the futures market, there are other safer, low-cost avenues for betting on natural gas prices.

One avenue is the United States Natural Gas ETF (UNG), which tracks prompt natural gas futures. UNG shares trade on the New York Stock Exchange like company stock. UNG rose 0.88% between September 4 and September 10.

Another avenue is the SPDR S&P Oil & Gas Exploration & Production ETF (XOP), which holds many US energy companies in its portfolio. Some of these energy companies have exposure to natural gas prices through their upstream gas production operations.

Because of the indirect exposure to volatile natural gas prices, an ETF like XOP could be a safer, more diversified option for more conservative investors. XOP remained flat between September 4 and September 10.

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Comparing performances

As you can see in the above graph, UNG underperformed natural gas prices at the beginning and the end of week. It briefly overperformed natural gas prices in the middle of the week.

XOP, on the other hand, was underperforming natural gas throughout the week and gave the lowest returns in the group at the end of the week. The drop in XOP from the higher levels it saw mid-week was due to a fall in crude oil prices, which fell ~0.3% between September 4 and September 10. Many upstream companies that XOP holds also have exposure to crude oil prices.

You can follow our weekly analysis of crude oil price movements at Market Realist’s Energy and Power page. You can also read the latest report in our article A Volatile Week for Crude Oil Prices: Analyzing the Key Reasons.

XOP includes US natural gas producers such as Noble Energy (NBL), Rice Energy (RICE), and PDC Energy (PDCE) in its portfolio. Combined, these companies make up 2.4% of the ETF.

You can also gain indirect exposure to energy prices and steady income by investing in MLP ETFs such as the Alerian MLP ETF (AMLP), which holds large US midstream MLP companies such as Enterprise Products Partners (EPD).

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