What’s Next For The US Natural Gas Fund (UNG)?

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Charles Morand

Natural gas is the one commodity that has mostly resisted the rally ushered in some three months ago by a growing consensus that the worse may be over for the economy.

A number of reasons have been put forward to explain this, including record storage levels and a growing supply base being unlocked through shale gas production in North America.  

Yet natural gas’ future looks bright: (a) it burns a lot cleaner than coal, making it a superior alternative to meet base- and peakload power requirements in a carbon-constrained world; (b) it is receiving growing attention as bridge fuel between gasoline-powered internal combustion engines and electric vehicles; (c) there is ample supply of it in the U.S. and Canada, making it popular with the energy independence crowd.

The near-term picture, however, is bleak…and it could be about to get bleaker. According to analysts at Citigroup Global Markets, trading activity at the US Natural Gas Fund (UNG) may be ‘artificially’ propping the front-month NYMEX contract. The storage situation is apparently bleak enough to warrant yet lower prices, begging the question: when, if it all, will the chickens come home to roost?

Although the combination of a bright future and depressed prices make natural gas – through UNG – an interesting investment idea for light-green alt energy investors with a time horizon beyond 12 months, there could be further price declines on the way. Right now may yet be a little early to pull the long trigger…


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