In a surprising turn of events, investors have shown an increasing interest in the U.S. Natural Gas Fund (UNG), an exchange-traded fund (ETF) that tracks the U.S. natural gas market, despite the commodity’s underwhelming performance throughout 2023.
The UNG’s price, which is closely aligned with the performance of natural gas futures contracts, has seen a significant decline this year. As of now, it has dropped by an astonishing 60.7%, with November witnessing a 27% fall alone. This downtrend reflects the broader struggles of the natural gas sector in the current economic climate.
Despite this downward trajectory, the ETF has attracted considerable investor attention. In the last month alone, UNG has garnered nearly $220 million in inflows, as per LSEG Lipper’s data. This remarkable influx represents about a quarter of the total $946 million the fund amassed in the first ten months of 2023. This trend indicates a growing investor interest in the natural gas sector, even in the face of declining market prices.
Market analysts have pointed out that the drop in UNG’s value is parallel to the fall in natural gas prices, which has been partly attributed to unexpectedly mild weather across the U.S. in recent weeks. This mild weather has reduced the usual demand for natural gas, leading to lower prices.
Stacey Morris, the head of energy research at VettaFi, suggests that investors are likely capitalizing on the ETF’s price dip. They anticipate that normal weather patterns will resume later in the season, potentially leading to a rise in natural gas prices. Morris explains that the current trend is a strategic play by investors, banking on the expected return to traditional seasonal pricing patterns.
The natural gas market itself experienced a 22% price drop in November, marking the most significant monthly percentage decrease since a 40% fall in January. Front-month gas futures for January delivery were trading slightly higher, at $2.815 per million British thermal units (mmBtu), on the New York Mercantile Exchange as of early Friday afternoon.
Adding to the intrigue, the U.S. Energy Information Administration (EIA) reported an unexpected addition of 10 billion cubic feet (bcf) of gas to storage in the week ending November 24. This addition came during a period of warmer-than-usual weather, which kept the heating demand low.
Interestingly, this isn’t the first time UNG has seen such a pattern. Morris notes that the fund experienced significant inflows back in February as well, coinciding with a similar downturn in both the commodity’s price and the ETF’s value. This trend highlights the cyclical nature of the natural gas market and the strategic investment approaches adopted by market participants, aiming to leverage these cycles for potential gains.