From March 23 to March 30, 2017, the United States Natural Gas ETF (UNG), which aims to track active natural gas futures, rose 1.9%. Natural gas futures also rose 1.9% during the same period.
UNG ended March 30, 2017, with a fall of ~0.9%, while natural gas futures fell 1.2%. On that day, the EIA (U.S. Energy Information Administration) announced that natural gas (GASX) inventories had fallen by 43 Bcf (billion cubic feet) in the week ending March 24. Analysts had estimated a fall of 37 Bcf.
Natural gas prices fell despite the slightly bullish data due to concerns regarding the supply glut even as the winter winds down. Plus, the recent rise in the number of US oil rigs is a concern for natural gas traders.
Does UNG track natural gas futures well?
On March 3, 2016, natural gas active futures hit a 17-year low. UNG rose ~30.7% from March 3, 2016, to March 30, 2017. During that period, natural gas active futures rose 94.6%.
From June 20, 2014, to March 30, 2017, UNG fell ~70.1%, while natural gas active futures fell 29.6%. The nearly two-year downturn in crude oil prices started on June 20, 2014. Crude oil can impact the sentiment in the entire energy sector.
The above numbers show UNG’s lower returns compared to the returns of natural gas active futures. The lower returns have been due to the small losses UNG suffered when rolling its exposure to active natural gas futures from expiring futures.
Active futures saw higher prices than the expiring futures contracts in the fund. Due to this “contango” structure in the natural gas futures market, UNG has underperformed natural gas in the last few years. Investors should keep this in mind when using UNG to play longer-term moves in natural gas prices.
Natural gas exposure
Apart from the United States Crude Oil ETF (USO), which tracks crude oil futures, and the energy equity ETFs we discussed in the previous part of this series, you might want to look at other ETFs and ETNs to play natural gas prices such as the following:
- the ProShares Ultra Bloomberg Natural Gas ETF (BOIL)
- the First Trust Natural Gas ETF (FCG)
- the VelocityShares 3x Long Natural Gas ETN (UGAZ)
- the Direxion Daily Natural Gas Related Bull 3X ETF (GASL)
Continue to the next part for a closer look at how the rebound in oil is affecting Wall Street.