A Month to Forget for Natural Gas ETF Investors

by Eric Dutram

June 28, 2013 | UNG UNL

 

 

 

June was a pretty rough month for commodity investors across the board. A strong dollar and concerns over the Fed’s easing program helped to dull broad natural resource demand, pushing many commodity ETFs into the red for the month.

In particular though, the month was one to forget for those in the natural gas space. This corner of the commodity world suffered not only thanks to the broad commodity trends in the market, but also due to some natural gas specific concerns as well.

Natural Gas in Focus

Weekly storage reports showed that injections were over 90bcf for each week in June, far higher than the year ago period, which saw injections in the 50-75bcf range. Additionally, the last report to close out June came in above expectations at 95bcf compared to predictions of 90bcf (read the Comprehensive Guide to Natural Gas ETFs).

Cool temperatures haven’t helped this situation, as the demand side of the equation has certainly been curtailed by somewhat low temperatures in much of the Midwest and Northeast. Generally speaking, in the summer months, hot temperatures help to boost natural gas demand, pushing prices higher for the fuel. This hasn’t really taken place so far in much of the country, keeping prices for the commodity in check for the most part.

ETF Impact

With this kind of market environment, investors shouldn’t be surprised to note that June has been terrible for natural gas ETFs as well. Products in this corner of the market experienced double digit losses, with the bulk of the selling coming in the tail end of the month.

In particular, the United States Natural Gas ETF (UNG - ETF report) was a big loser for the time period, losing about 18% in the trailing one month time frame. Its more spread out counterpart, the Unites States 12 Month Natural Gas ETF (UNL - ETF report), lost a little less in the period but still saw horrendous trading with a -14.8% loss (also read The Key Differences Between Natural Gas ETFs).

The sharp moves lower are also taking a big bite out of the long term performance for natural gas ETFs. These products were market darlings in the first part of 2013, but thanks to the latest round of losses, are on the verge of falling back into negatives for the calendar year.

Outlook

There is also a broad expectation that this trend could continue to start the second half of 2013, as evidenced by a recent analyst survey. Eight of 15 surveyed, according to Bloomberg, predict that futures on the NYMEX will drop to start July, as lower-than-average temperatures hit much of the South and mid-Atlantic regions (also see Forget UNG: Try These Natural Gas ETFs Instead).

Thanks to this trend, investors could see more supplies being added to the vast natural gas stockpile already in storage. As a result, natural gas ETFs may have further to fall, extending the brutal trading into July, and suggesting that investors may want to look elsewhere for their commodity exposure for the time being.