Is UNG Diverging from Natural Gas Prices?

UNG Performance

From January 26, 2017, to February 2, 2017, the United States Natural Gas Fund (UNG) fell ~6.1%. Natural gas futures fell 6.2% during this period. In the trailing week, natural gas prices fluctuated between $3.11 and $3.5 per MMBtu. UNG is an ETF meant to track active natural gas futures.

Is UNG Diverging from Natural Gas Prices?

Inventory data

UNG ended February 2, 2017, with a rise of ~0.6%, while natural gas futures rose ~0.6%. The U.S. Energy Information Administration announced that natural gas (FCG) inventories fell by 87 Bcf (billion cubic feet) for the week ending on January 27, 2017. Analysts expected a fall of 82 Bcf.

Does UNG track natural gas futures well?

On March 3, 2016, natural gas active futures hit a 17-year low. UNG rose ~37.3% from March 3, 2016, to January 19, 2017. During that period, natural gas active futures rose 94.3%.

From June 20, 2014, to January 19, 2017, UNG fell ~68.6%, while natural gas active futures fell 29.7%. The nearly two-year downturn in crude oil prices started from its peak on June 20, 2014. It lowered the sentiment in the entire energy sector.

The above numbers show UNG’s lower returns compared to natural gas active futures. The lower returns are due to small losses that UNG suffered when rolling its exposure to natural gas active futures. The futures were higher in price than the expiring futures contracts in the fund.

Natural gas exposure

Apart from the United States Crude oil Fund (USO), which tracks crude oil futures, and energy equity ETFs we discussed in the previous part, you might want to look at other ETFs and ETNs to take advantage of any upside in natural gas prices. These energy ETFs and ETNs include the following:

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