Natural Gas ETFs Heat Up Ahead of Brutal Cold Snap
Natural gas prices are at their highest level since early 2023, leading leveraged ETF BOIL to soar ahead of a forecasted January cold snap.
Single-stock ETFs got all the attention in 2024, but another type of leveraged ETF is having its day in the sun this week.
The ProShares Ultra Bloomberg Natural Gas ETF (BOIL), a 2x leveraged exchange-traded fund tied to natural gas, soared by 17% Monday after top weather models projected much colder-than-normal temperatures during the first half of January across the Eastern portion of the United States.
Front month natural gas futures contracts closed at $3.94/Metric Million British Thermal Unit (MMBtu) Monday after reaching as high as $4.20, their loftiest level since January 2023.
The United States Natural Gas Fund (UNG), which tracks natural gas futures, jumped 14% in the session, in line with the move in futures prices.
UNG currently tracks natural gas futures contracts expiring in February, while BOIL tracks those expiring in March.
Weather Effect
For natural gas, weather is often the biggest short-term catalyst. The fuel is used for heating in the winter and is the number one source of electricity in the U.S. all year round.
In addition to boosting heating demand, cold temperatures can cause natural gas wells to freeze, reducing production temporarily.
On the other hand, the U.S. is flush with natural gas supply, which has capped the upside in prices since the fracking revolution began a decade-and-a-half ago.
Supply in the country has often outstripped demand, causing producers to export their excess to other countries via ships carrying liquefied natural gas.
Still, cold snaps like the one expected in January have the potential to turbocharge consumption of the fuel, leading to sharply higher prices.
If the brutal temps extend into February, perhaps the rally in natural gas ETFs BOIL and UNG could continue. On the other hand, if temperatures moderate, it wouldn’t be surprising to see gas prices retrench.
On Tuesday, BOIL and UNG were down 9% and 7%, respectively, as natural gas pared its gains from Monday.