Natural gas ETFs have been in focus to start 2013, as the
commodity has been one of the few strong performers in the natural
resource world. This has largely been due to unseasonably cold
weather across much of the country, and higher power plant demand
for the potent fuel (see Natural Gas ETFs Soaring in 2013).
These factors have helped to keep natural gas in the green for
much of the year, and suggested to some that a bullish trend might
finally be here to stay in the market. Unfortunately, the most
recent storage report was quite bearish, and could signal an abrupt
end to the strong trend in the natural gas ETF market for the time
being.
May’s first EIA storage report
The weekly EIA storage report is always a huge mover of natural
gas markets, and this round was no different. Traders were looking
for an increase of 30 billion cubic feet (bcf) week-over-week, but
the actual was 43bcf.
This was a huge increase in supplies over expectations, and
continued the streak of injections into the supply market after the
long winter of drawdowns. Current stocks of natural gas now stand
at 1,777 bcf, according to Bloomberg, as the last three weeks have
pushed up supplies by over 100 bcf.
“It was a bearish injection and it may set the tone for future
storage reports,” said Kent Bayazitoglu, an analyst at Gelber &
Associates in Houston. “The big question is whether we’re going to
start seeing mega-injections that really start to refill
inventories.”
Impact & outlook for natural gas
Although this boost was less than the five-year average gain for
the week—this figure stands at 67 bcf—it is clear that traders
believed this was a very bearish signal. Natural gas futures slid
by over 5.5% immediately following the report, and it was among the
only commodities that was lower in the session.
Catalysts on the horizon are also few and far between, as this
is traditionally a time of big builds in the natural gas supply
market. And with mild weather expected across much of the country
in the near term, supply increases could continue in May (read The
Comprehensive Guide to Natural Gas ETFs).
Natural Gas ETFs in focus
For those of us without a futures account, investing in natural
gas can only really be done via ETFs. Fortunately, there are a
number of exchange-traded products targeting the natural gas market
which can allow traders to make a directional bet on the price of
the commodity, including the following ETFs:
United States Natural Gas Fund (UNG)
This ETF was down about 6% by the midpoint in the session on
extremely heavy volume. In fact, the extremely liquid product was
already at 8 million shares before 12:30 ET, a pretty good mark
considering that the usual day sees about 6.6 million shares change
hands.
The sluggish session today helps to reverse the solid trading
that was seen in UNG in Friday and Monday trading. Now, the ETF is
down about 3% over the past five days though it is still showing a
gain for the one month time period.
Meanwhile, other less-traded natural gas ETFs-- such as UNL,
GAZ, and NAGS-- were also big losers on the day thanks to this
report. While each of these have some special nuances when it comes
to which futures contracts they are focusing on, they were all down
at least 3% on the day (with GAZ slumping more at one point, in
part thanks to its premium/discount issues).
Leveraged Natural Gas ETFs
As you might expect, the day was especially volatile for
leveraged and inverse natural gas ETFs, as many of these saw double
digit moves on the day. Below, we have a rundown of their
performances in this choppy session:
Long
|
Short
|
ProShares Ultra DJ UBS Natural Gas ETF (BOIL) –
down 12.5% (2x leverage)
|
ProShares UltraShort DJ UBS Natural Gas ETF
(KOLD)- up 12.4% (-2x leverage)
|
VelocityShares 3x Long Natural Gas ETN (UGAZ) –
down 19% (3x leverage)
|
VelocityShares 3x Inverse Natural Gas ETN
(DGAZ) – up 18.7% (-3x leverage)
|
Bottom Line
Once again, the storage report was key for natural gas ETFs.
This time, however, the results were quite bearish, leading to a
huge sell-off in the natural gas marketplace.
Many of the most popular natural gas funds were down more than
5% on the day, signaling to many that the bullish trend is now over
in the space. For those that believe this will continue next time
the EIA releases data, a look to the short natural gas ETFs could
be an interesting idea, as they are clearly capable of enormous
gains when natural gas markets are seeing big supply increases.
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VEL-3X INV NG (DGAZ): ETF Research Reports
IPATH-DJ-A NGAS (GAZ): ETF Research Reports
TEUCRM-NAT GAS (NAGS): ETF Research Reports
VEL-3X LNG NG (UGAZ): ETF Research Reports
US-NATRL GAS FD (UNG): ETF Research Reports
US-12M NATL GAS (UNL): ETF Research Reports
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