Natural Gas ETFs Jump On Colder-Than-Normal Weather Forecast

Natural gas prices have been spiking lately on projections for cooler-than-expected temperatures in the second half of January.

Per CNBC, updated reports showed that weather conditions will cool down significantly with below-average temperatures over the next two weeks and the cold snap drifting eastward from the Midwest toward the East Coast. According to Bespoke Weather Service, weather model changes over the weekend were "incredibly bullish" as intense cold is expected this weekend.

A prolonged cold weather will continue to spur heating demand in homes and business, and put pressure on inventories, bolstering natural gas prices. Investors should note that November-March is generally the peak demand period for gas consumption in the United States.

With natural gas inventories still 15% below the five-year average, investment bank Barclays sees room for higher prices even if weather normalizes during the rest of winter. Given the bullish fundamentals, natural gas price is rising and is poised to spike even further. Investors should tap this trend with lower risk using the ETFs. These ETFs might be easier plays for investors seeking to deal directly in the futures market:

United States Natural Gas Fund (UNG - Free Report)

The fund provides direct exposure to the price of natural gas on a daily basis through futures contracts. If the near month contract is within two weeks of expiration, the benchmark will be the next month contract to expire. It has AUM of $324.5 million and trades in volume of around 4.2 million shares per day. The fund has 1.30% in expense ratio and surged 13.4% in a week.

United States 12 Month Natural Gas Fund (UNL - Free Report)

This product seeks to offer spread-out exposure across the futures curve in order to mitigate contango, a huge problem in the natural gas ETF market. The investment objective of UNL is to reflect the daily changes in the price of natural gas delivered at the Henry Hub Louisiana. Its benchmark is the near month futures contract to expire and the contracts for the following 11 months, for a total of 12 consecutive months. If the near-month futures contract is within two weeks of expiration, the benchmark will be the next month contract to expire and the contracts for the following 11 consecutive months. UNL has accumulated $4.9 million in its asset base and charges 90 bps in annual fees. The product trades in paltry average daily volume of 9,000 shares and has gained 5.3% in a week.

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Disclosure: contains statements and statistics that have been obtained from sources believed to be reliable but are not guaranteed as to accuracy or completeness. References to any specific ...

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