Growing Interest in UNG Spurs Natural Gas Price Rally

The front-month natural gas NYMEX contract has rallied 45% since the end of April.  The price rally has taken many by surprise because fundamentals have not changed.  Industrial demand remains down, liquefied natural gas (LNG) imports are starting to show up and storage inventories will likely hit a new record this fall. 

Some analysts believe the rally in natural gas prices is due to a nearing economic recovery, but Energy Solutions, Inc. doubts that is the case.  “History shows that natural gas prices rally in the second quarter of the year,” says Valerie Wood, President of Energy Solutions, Inc.  “The rally usually starts a little earlier than it did this year, but it does tend to peak in May.  So, the timing of this rally isn’t that much different from past years.”

“Another factor driving this rally involves a little speculative déjà vu,” says Wood.  There has been a surge of investor interest in United States Natural Gas Fund, LP (UNG), an exchange-traded fund.  When UNG is purchased, the portfolio of products that make-up UNG are purchased. One of those products are natural gas NYMEX futures contracts.  “If the purchase of UNG is aggressive, it can very well cause a quick rally in natural gas prices, which in turn increases the value of UNG and makes investors very happy.  This prompts investors to throw more money at UNG, which could be a driving force behind another rally.  This same type of investment happened last year, albeit with other types of funds,” says Wood.

But Wood urges caution to those looking to make a quick buck.   “The economic data is better than it was one month ago, but the nation is a long way away from a growth mode that is going to solidify a rebound in industrial demand.  Until that is closer, the potential for a supply surplus in late-summer or fall still exists, particularly if hurricane activity is moderate,” says Wood.

Natural gas buyers can stay up-to-date with these types of market-changing events through The Advisor, which contains long and short-term natural gas pricing outlooks and other valuable tools to assist in a company’s natural gas buying decisions.  “With 12 monthly editions, 48 weekly editions, and ongoing alerts and educational analyses, natural gas buyers will be pleasantly surprised at how cost effective this publication is.  Remember, knowledge is power," says Wood.  To learn more about the benefits of The Advisor or to sign up for a free 30-day tour of The Advisor, go to www.energysolutionsinc.com, email request@energysolutionsinc.com or call (608) 848-9589.

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About Energy Solutions, Inc.

Formed in 1996, Energy Solutions, Inc. is independently owned. With more than 25 years of experience in the natural gas industry, our team focuses on natural gas prices and in helping businesses improve their internal processes for the purchase of natural gas.