UNG Is Outperforming Natural Gas Futures



UNG’s performance

From April 6 to April 13, 2017, the United States Natural Gas ETF (UNG), which aims to track active natural gas futures, fell 2%. Natural gas futures fell 3.1% during the same period. Last week, UNG outperformed natural gas active futures.

Article continues below advertisement

Inventory data

UNG ended April 13, 2017, with a rise of ~1.6%, while natural gas futures rose 1.3%. On that day, the EIA (U.S. Energy Information Administration) announced that natural gas (GASX) inventories had risen by ten Bcf (billion cubic feet) in the week ending April 7. A Wall Street Journal survey had estimated a rise of 8.4 Bcf. However, natural gas prices rose as traders closed bearish positions ahead of the long weekend.

Does UNG track natural gas futures well?

On March 3, 2016, natural gas active futures hit a 17-year low. Natural gas active futures rose 96.8% from March 3, 2016, to April 13, 2017. During that period, UNG rose ~32.3%.

From June 20, 2014, to April 13, 2017, natural gas active futures fell 28.8%, while UNG fell ~69.7%. 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 were due to the small losses UNG suffered when rolling its exposure to active natural gas futures from expiring futures.

Article continues below advertisement

Active futures traded at higher prices than 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. On April 13, natural gas futures contracts out to August 2017 traded at progressively higher 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 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)

In the next part, we’ll discuss how the rebound in oil is affecting Wall Street.


More From Market Realist