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UNG Mirrors Natural Gas, XOP Rises Last Week

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Nov. 20 2020, Updated 11:08 a.m. ET

Different approaches to natural gas

As we saw in the previous part of this series, natural gas fell ~1.52% between Friday, September 11, and Thursday, September 17. 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 fell 1.49% between September 11 and September 17.

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 natural 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 rose 3.41% between September 11 and September 17.

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Comparing performances

As you can see in the above graph, UNG mirrored natural gas prices throughout the week and gave similar returns at the end of our weekly cycle.

XOP, on the other hand, was underperforming natural gas initially in the week but surged mid-week and overperformed both UNG and natural gas prices. It gave the best returns among the group at the end of the week.

The rise in XOP was led by a surprise crude oil inventory decline, which caused prices to rise 5.7% on Wednesday, September 16, as we can see in the above graph. Companies held in XOP’s portfolio also have exposure to crude oil prices because of their upstream operations.

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 WTI and Brent Crude Oil Prices Fell Due to Gloomy 2016 Outlook.

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 XOP.

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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