NOTThe price of natural gas has increased in recent times due to the warm weather forecast for the summer season. According to the National Oceanic and Atmospheric Administration, the weather is expected to remain warmer than normal over most of the west coast and midwest over the next 8 to 14 days, which will boost demand for air conditioning.
Intense hot weather will boost cooling demand in homes and businesses, and ease pressure on storage injection levels, boosting natural gas prices. Demand for energy is also on the rise as global economies are on track for a rapid recovery thanks to the broader reach of vaccinations and massive stimulus measures. Additionally, soaring global gas prices are prompting buyers around the world to continue buying all of the liquefied natural gas (LNG) produced by the United States (read: Here’s Why You Should Bet On Energy ETFs Now).
Additionally, an increase in LNG export demand is adding to the strength and likely will do so for the remainder of the year. Indeed, LNG exports are expected to increase this year given the higher demand in Asia and Europe. The recovery in natural gas consumption around the world is also pushing up the price of natural gas.
Given the bullish fundamentals, investors should exploit this trend with lower risk by using ETFs. These ETFs could be easier games for investors looking to trade directly in the futures market:
United States Natural Gas Fund UNG
The fund provides direct exposure to the price of natural gas on a daily basis through forward contracts. If the next month’s contract is within two weeks of its expiration, the benchmark will be the next month’s contract that expires. It has $ 268.7 million in assets under management and a trading volume of approximately 2 million shares per day. The fund has an expense ratio of 1.35% and jumped 2.7% in one week (see: all Energy ETFs here).
UNL US 12-Month Natural Gas Fund
This product seeks to provide exposure to natural gas without the use of a commodity term account. UNL’s investment objective is to reflect the daily variations in the price of natural gas delivered to the Henry Hub Louisiana. Its benchmark is the futures contract for the next month that expires and contracts for the next 11 months, for a total of 12 consecutive months. If the next month’s futures contract is within two weeks of its expiration, the benchmark will be the next month’s contract that expires and the contracts of the next 11 consecutive months. UNL has accumulated $ 10.7 million in its asset base and charges 90 basis points in annual fees. The product is trading in a paltry average daily volume of 18,000 shares and has gained 2.9% in one week.
IPath Bloomberg Natural Gas Sub-index Total return ETN GAZ
The rating provides exposure to the Bloomberg Natural Gas Subindex Total Return, which consists of the Bloomberg Commodity Index Total Return contract that relates to natural gas. The product is unpopular and illiquid with assets under management of $ 4.3 million and an average daily volume of 2,000 shares. The expense ratio is 0.75%. GAZ added 2.7% over the past week.
ProShares Ultra Bloomberg Natural Gas Boiler
For investors looking to gamble on peak natural gas for outsized profits over a short period of time, a leveraged bet might be a way to go. BOIL offers twice (2X) the daily performance of the Bloomberg Natural Gas sub-index. It charges 95 basis points in annual fees and has amassed $ 64.4 million in its asset base. The ETF jumped 5% in a week (read: Bet on the energy sector with leveraged ETFs).
If the hot weather persists, the demand for fuel for cooling is likely to increase and could reduce huge natural gas inventories, pushing the price up. As a result, investors could certainly benefit from the surge in natural gas prices with the ETFs mentioned above, provided the weather gets warmer in the coming weeks.
Want key ETF information delivered straight to your inbox?
Zacks’ free fund newsletter will keep you up to date with top news and analysis, as well as top performing ETFs, on a weekly basis. Get it for free >>
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.