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Sunday, February 20, 2011

Natural Gas ETFs Have a Tough Week

Futures-based natural gas exchange traded funds (ETFs) had a rough go of it last week. Is there any hope for a turnaround?

Maybe not anytime soon. Natural gas last week closed below $4, the lowest level in almost three months. That sank United States Natural Gas (NYSEArca: UNG) by nearly 10% and the newly-launched Teucrium Natural Gas (NYSEArca: NAGS) by 6.6% for the week.

That’s a sharp turnaround from the $13.50 level the fuel saw in the infamous summer of 2008, says The Fort-Worth Star Telegram. But like oil and gas, which also saw sky-high prices then, it swiftly and sharply reversed itself.

Despite the fact that more than 52% of households use natural gas for heat and a record snowfall across the country has them cranking up the furnaces, the market has a big surplus to work through. One encouraging sign is that supplies did fall more than expected last week, says FuturesPros.
A drilling boom in the sector could continue to pressure natural gas prices, although prices have now gotten so low that some companies wonder if the cost of drilling is worth it, says CNN.

Chesapeake Energy (NYSE: CHK) is one such company that abandoned plans to drill for natural gas; it’s 4.1% of First Trust ISE-Revere Natural Gas (NYSEArca: FCG). FCG has fared better lately; though it’s down 0.3% this week, it’s up 3.4% over the last 10 days.

This is one area that has a lot of sorting out left to do. Perhaps if some drillers step back from their efforts to extract natural gas, it will be a positive for prices. For now, they seem to be locked in a downtrend.

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1 comment:

  1. I do not see the point in natural gas ETF'S when theirs so many other areas doing better right now.