Natural Gas, UNG Slaughtered by EU Sanctions

Natural gas took a major blow in trading today as the fossil fuel lobbed off more than 3.5%. The unexpected drop came as new sanctions from the EU officially banned natural gas imports from Iran. The move comes as European nations are “trying to increase pressure on Iran to cooperate in talks regarding its nuclear program” writes Associated Press. This comes in a long line of efforts by numerous nations to force Iran into cooperation regarding its nuclear program, an issue that the country seems to have no intentions of addressing [for more natural gas news and analysis subscribe to our free newsletter]. 

While Iran is not the largest producer in the world, the move was significant because the nation has the second highest proven reserves, trailing only to Russia. The European Union will be fine as far as NG consumption is concerned as Russia will be able to provide for their needs, but the move to isolate such a major producer spooked markets and traders alike. As the fossil fuel took a nose dive on the day, a number of NG-based financial instruments went haywire, as volumes spiked all across the energy world. Below, we outline some of the most significant natural gas movers in today’s hectic session.

  • United States Natural Gas Fund (UNG): -3.2%
  • 3x Long Natural Gas ETN (UGAZ): -7.1%
  • 3x Inverse Natural Gas ETN (DGAZ): +6.8%
  • E-TRACS Natural Gas Futures Contango ETN (GASZ): +0.8%

Outlook for Natural Gas

It is widely agreed that natural gas will play an increasing role in our energy usage in the coming years. Though the fossil fuel suffered a blow following the 2008 recession, recent weeks have seen the commodity claw its way higher. But investors should keep in mind that as NG becomes more expensive, alternatives are bound to step in. Many experts and analysts feel that NG’s popularity is mainly due to the fact that it became so cheap, but as it begins to get more expensive, many are looking to sources like coal to make a resurgence [see also Five Commodity ETFs Long Term Investors Should Run Away From].

As far as the short term is concerned, natural gas’ current supply glut could be eased as the winter months come on and demand increases, but this will certainly be a good asset to keep an eye on in the coming weeks.

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Disclosure: No positions at time of writing.

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