Inside Natural Gas and UNG’s Wild Q2

After one of the worst runs in the commodity’s history, natural gas was able to make a few positive strides over the past three month stretch. Most notably, the ultra-popular United States Natural Gas Fund (UNG) was able to actually come away with gains on the quarter, a major win for a fund that was largely considered to worst performing ETF of all time. During the first quarter of 2012, UNG gave up a miserable 38.4%, but was able to tack on 21.2% in Q2, giving NG traders a glimpse of hope as we head into the summer months [see also 25 Ways To Invest In Natural Gas].

Natural Gas and Q2

Between late April and late May, UNG was able to make massive strides, as low supplies and fortunate weather helped boost demand for the fossil fuel and ETF alike. But the commodity took swift blow as May came to a close, putting it back to where it started for the quarter. Just when natural gas bulls finally caught a break, higher than average supplies and a sputtering economy drove prices back into the gutter. But as summer months began to kick in and temperatures across the country rose, demand for NG spiked [see also Jim Rogers Says: Buy Commodities Now, Or You’ll Hate Yourself Later].

For several weeks, the EIA Natural Gas Storage Report showed lower than expected inventory, propelling UNG higher including gains of 15% and 7% on two separate sessions. For a fund that was forced to reverse split 1 for 4 in February (not the first reverse split UNG has endured, mind you) the recent boost has been more than welcomed. After all, UNG is one of the most popular trading instruments in the world, as the fund has over $1 billion in assets and an average daily volume topping 12 million. Likewise natural gas futures are among the most popular with active investors, keeping this commodity consistently in the headlines [see also Why You Should Invest In Natural Gas: The Fuel of the Future].

The Future of Natural Gas

Predicting where natural gas will end up is more or less impossible. It seems like every other day there is a break through in fracking or more deposits found around the country, yanking prices back and forth. Truthfully, natural gas exposure is typically left for active investors, as its swift daily movements have been known to burn those who were not fully prepared. Though long-term positions can be utilized via stocks and some funds, the majority of natural gas positions come from traders. That being said, the trend is your friend, as trading habits will likely have a massive impact on the commodity [see also What Is Contango?].

Also note that weather is one of the biggest price drivers of NG, and the recent heatwave around the country is sure to have an effect on natural gas. Keeping a close eye on futures and UNG will pay off well, as it is most active during the summer months. Another major price driver will be hurricane season, which is currently ramping up in the Southeast. A number of hurricanes in the past have knocked out key supply points for NG and wreaked havoc on prices. UNG’s wild second quarter will more than likely be followed by another volatile three month stretch. Stay disciplined and stay prepared.

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Disclosure: No positions at time of writing.

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