Energy traders call natural gas futures “Widowmakers” due to the extreme volatility that can occur at any time. Such drastic moves in the oil/energy sector have become commonplace in the last two months. A combination of shifting geopolitical and political news, as well as winter storms, led to price increases that knocked short sellers out of the game. Natural gas is a fossil fuel, so it is not renewable, but it burns cleaner than coal. Additionally, fuel cells can use it to produce cleaner electricity through a chemical reaction rather than combustion.
Cancellation of the gas transit agreement between Ukraine and Russia
Over the past five years, several European countries have received natural gas from Russia through pipelines passing through Ukraine. The Ukrainian gas transit agreement with Russia’s Gazprom expired on January 1, 2025, as Ukraine decided not to renew it because it did not want to help finance Russia’s war. This led to a sharp increase in natural gas prices at the end of December 2024. While Ukraine will lose $800 million in annual revenue, Russia will lose approximately $5 billion. Most European countries have already found other ways to obtain natural gas. On December 27, 2024, natural gas prices increased by 22% due to the fact that Ukraine did not renew the deal.
President Biden blocks 625 million acres from new drilling
Just as prices returned to the previous day’s levels, US President Biden announced a permanent block on new drilling on nearly 625 million acres, including the East Coast, California, Washington State, Oregon and parts of Alaska, as well as the eastern Gulf of Mexico. . This led to a new rise in natural gas prices, followed by a nationwide snowstorm on January 6, 2025, which dumped amounts of snow on the East Coast not seen in a decade. The winter of 2025 is predicted to be some of the coldest weather in nearly three decades. East Coast as the Polar Vortex moves south into the new year.
The year is still young. Here are two ETFs to trade as natural gas prices rise.
US Natural Gas ETF
US Natural Gas Fund Today
US Natural Gas Fund
As of 01/17/2025 16:10 Eastern
- 52 week range
- $12.35
▼
$23.00
- Dividend yield
- 0.00%
- Assets under management
- $852.05 million
The standard ETF for measuring the movement or trading of natural gas prices is US Natural Gas Fund NYSEARCA: UNG ETF. This ETF is extremely liquid, with trading volume averaging 12 million shares per day. Assets under management (AUM) are $863.7 million and the market capitalization is $1.06 billion.
Its major stake is 44.51% in natural gas futures contracts “Henry Hun Natural Gas 25 Jan”. The rest is derivatives, money market funds, cash and cash equivalents. UNG shares are up 47% in less than two months, but are still trading down 25.1% over the past 12 months.
ProShares Ultra Bloomberg Natural Gas ETF
ProShares Ultra Bloomberg Natural Gas Today
ProShares Ultra Bloomberg Natural Gas
As of 01/17/2025 16:10 Eastern
- 52 week range
- $35.68
▼
$155.90
- Dividend yield
- 0.00%
- Assets under management
- $402.28 million
ProShares Ultra Bloomberg Natural Gas ETF NEWSIRKA: BOIL is a 2x leveraged ETF for traders looking for more volatility. It is designed to reflect doubling of one-day changes in natural gas futures prices.
For example, if natural gas futures rise 6% on a day, then BOIL should rise 12% and vice versa on down days.
It’s worth remembering that leveraged ETFs can lose value over time due to daily valuations. This means that gaps up or down can affect prices and reduce the value of the ETF over time, even if natural gas prices remain unchanged.
Contango and decay: trade them short term, don’t hold them long term
These ETFs can suffer from contango, where the price of futures contracts exceeds the spot price, resulting in negative roll returns. This may result in lower productivity and lower efficiency over time as both UNG and BOIL track commodity futures contracts. Contango could impact BOIL even more since it is a 2x leveraged ETF. For this reason, it is not better to hold these ETFs for the long term, but rather to trade them in the short term.
Before you consider the U.S. Natural Gas Fund, here’s what you should hear.
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