Investors Bet Big On Worst Performing ETF Of 2017

March 14, 2017

You'd be forgiven for thinking that it was all bad for natural gas. It's one of the worst-performing commodities of the year, and products that track natural gas are among the worst-performing ETFs of the year.

Only 2 ½ months into 2017, natural gas futures are down 18.5%, while the United States Natural Gas Fund (UNG) is down 21.3% and the VelocityShares 3x Long Natural Gas ETN (UGAZ) is down 58%, making the latter the poorest-performing exchange-traded product of the year so far.

YTD Returns For Natural Gas Futures, UNG, UGAZ

In light of this dismal performance, there can't be anything good going on with natural gas, can there?

Warm Winter Masks Bullish Trends

As is the case for all commodities, the answer to that question comes back to two variables: supply and demand. Prices for natgas fell through the floor during the first two months of the year after one of the warmest winters on record sapped demand for the heating fuel.

The National Oceanic and Atmospheric Administration (NOAA) called the 2016/2017 winter, which runs from December to February, the sixth-warmest on record. According to the NOAA, the average temperature across the contiguous U.S. during the period was 35.9 degrees Fahrenheit, 3.7 degrees above average.

The warm winter devastated heating demand for natural gas―which makes up the bulk of consumption during the winter months―but it also masked some bullish developments for the commodity that were brewing under the surface.

 

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