U.S. hurricane season kicked off over the weekend, as the time period between June 1st and November 30th of each year brings special attention to these storms. Aside from the devastation they can bring to the areas they hit, these storms can also have a big impact on the commodity world (albeit short-term). Few commodities feel the brunt of the blow more than fossil fuels [for more commodity news and analysis subscribe to our free newsletter].
With a number of WTI oil and natural gas stations near the coast and even in the Atlantic and Gulf, hurricanes have been known to inject a fair amount of volatility in these hard assets. The storms have been known to knock out oil and NG platforms and pipelines, causing prices to react swiftly (and in some cases harshly).
Reacting to Big Storms
For both of these fossil fuels, the prices are typically built-in well in advance of any kind of major event. That means that if a storm is predicted to disrupt a particularly fruitful region, prices for both commodities may rise in anticipation of a supply disruption. Note that this applies more to NG than it does to crude oil, as crude is far more heavily influenced by macroeconomic and political factors. That being said, a big storm can still flare up prices [see also 25 Ways To Invest In Natural Gas].
Be careful, however, when it comes to expectations for a storm. In some cases, prices may rise in anticipation of a hurricane that never hits, causing a quick correction. Likewise, a storm can turn out worse than predicted, also causing a swift reaction in the prices of these commodities. Below, we outline a handful of commodity ETFs to keep an eye on as hurricane season wears on:
- United States Natural Gas Fund (UNG): One of the most popular natural gas funds in the world, UNG will offer the high liquidity that traders desire when trying to enter and exit positions quickly.
- United States Oil Fund (USO): Like UNG, USO is among the most popular products in the world concerning its underlying commodity. Tracking WTI crude futures, this fund also boasts strong liquidity for any active traders looking to make a position.
- 3X Natural Gas Bear/Bull ETNs (UGAZ/DGAZ): These two ETNs come with a high risk, high reward scenario that some crave. UGAZ aims to return 300% of the movements in NG while DGAZ strives to return -300% on the same exposure.
- 3X Crude Oil Bear/Bull ETNs (UOIL/DOIL): These two ETNs offer 300% (UOIL) and -300% (DOIL) exposure to WTI crude oil futures. Again, they are very volatile and dangerous products that should only be used by those who truly understand them.
- United Stated Gasoline Fund (UGA): UGA is one of the most popular products that offers exposure to RBOB gasoline futures. Gasoline prices are also known to be big movers during hurricanes, as storms can throw a wrench in consumption patterns and cause prices to react somewhat wildly.
Disclosure: No positions at time of writing.