That's 2.9 times the fund's entire asset base in March, proving that a stadium full of investors has concluded that natural gas prices are due for a bounce.
I don't see it yet. Current storage levels are more than 20% above their five-year average, and recently discovered fields in Louisiana and Texas sport solid production rates. The industry needs prices to fall, but individual companies can't slow production because they need cash now and will sell even at low prices. Less money coming in has cut the rig count back, and that's one reason people are looking for a price spike eventually.
As with oil, the time frame is critical. In the long term, almost every commodity will be higher in price, a conclusion you can reach by looking at nothing more than population trends and technology proliferation maps. More people demanding any finite resource will send the price of that resource rising, and that's nowhere clearer than in energy markets.
Fine, but in the short term, anything goes and right now what's going on is a stockpiling of natural gas reserves that will be able to absorb quite a bit of demand.
As we often do, we'll watch. The price to watch is Henry Hub spot, which closed Friday at $4.05 per million Btu, down from $6.10 on Jan. 6 but up from $3.19 on Apr. 27. How did UNG track during those time frames? Let's compare:
1/6 to 4/27
-48% Henry Hub spot
-47% UNG
4/27 to 6/19
+27% Henry Hub spot
+16% UNG
Recent choppiness has kept UNG from keeping up, and if natural gas remains weak through the summer, it will get cheaper again because it tracks well to the downside. It closed Friday at $15.16. My initial buy price target is $14.
Addendum
Since that article ran on June 21, UNG has dropped from the previous Friday's close at $15.16 to today's intraday at about $12.50. The factors mentioned above still apply, so we're watching and waiting for the right cheap entry. Notice that we did not buy as soon as it hit the target price of $14. We often watch and wait for long periods before placing an active order, and this is one of those times.
