KOLD ProShares UltraShort Bloomberg Natural Gas

Natural gas had managed to resist the commodity trend to start 2013, as the product gained significantly to begin the year. However, the good days now seem to be over for natural gas investors, as May has been a horrendous month for the commodity.

This near-term bearish trend continued with the latest EIA storage report in which supply additions came in above expectations. The consensus called for an increase of 95 billion cubic feet (bcf), but investors saw 99 bcf injected instead (read the Comprehensive Guide to Natural Gas ETFs).

This addition also compared unfavorably with recent trends for this week in the year, as the five year average had a rise of just 69bcf. However, the total stocks of natural gas—which stood at 1.964 trillion cubic feet—were still below the five year trend for this time in the year, though traders focused in on the week’s above estimate injection, and calls for mild weather in the days ahead.

As a result, prices of front month natural gas futures experienced another bout of weakness in Thursday trading, falling below the key $4 mark. In total, prices fell about 3.5% after the report was released, signaling to many that more rough trading was ahead for the commodity.

Natural Gas ETF Impact

Obviously, this bearish report had a big impact on natural gas ETFs in the trading session. The most popular fund, the United States Natural Gas ETF (UNG) was down about 3.8% on the session on volume that was above average (read Forget UNG: Try These Natural Gas ETFs Instead).

The more spread out along the futures curve version, the United States 12 Month Natural Gas ETF (UNL) did a bit better on the day, losing just 2.7% in comparison. However, the fund’s volume is much lighter than UNG, though it also saw a burst in trading thanks to the EIA report.

Meanwhile in the leveraged ETF market, the 2x fund (BOIL) was down about 7.3% while the 3x product UGAZ, lost a bit over 11% in the session. Unsurprisingly, the inverse natural gas market did quite well on the news today, with the -2x KOLD adding about 7.5% and DGAZ jumping higher by just over 11%.

Natural Gas ETF Outlook

Given the bearish report and the forecast for more mild weather, we could see a continued fall in the natural gas ETF market. This is especially true considering the magnitude of the supply injections as of late, and the trend that is building for this metric (read 3 Energy ETFs for America’s Production Boom).

So, investors may want to pause or cash in a bet on natural gas ETFs at this time, as the commodity is definitely facing some strong headwinds. Instead, any of the short natural gas ETF plays could be better options for now, particularly given the supply demand imbalance, and the long history of natural gas weakness in the ETF world.

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PPO-ULT DJ-U NG (BOIL): ETF Research Reports
 
VEL-3X INV NG (DGAZ): ETF Research Reports
 
PRO-ULS DJ-U NG (KOLD): 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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