Natural Gas ETFs Draw ‘Buy the Dip’ Investors

Fund buyers see value in the commodity after 65% drop since mid-December.

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Reviewed by: Shubham Saharan
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Edited by: Shubham Saharan

Natural gas exchange-traded funds rose as “buy the dip” investors seek to take advantage of a recent tumble in the commodity’s price. 

Interest in natural gas has spiked despite the commodity’s 70% decline in the past three months. It has now hit its lowest price since 2020. Despite the slump, investors are taking the plunge and piling into natural gas ETFs.  

The SPDR S&P Oil & Gas Exploration & Production ETF (XOP) and the VanEck Oil Services ETF (OIH) rose 3% and 2%, respectively, on Thursday. Meanwhile, two of the largest natural gas ETFs, the ProShares Ultra Bloomberg Natural Gas (BOIL) and the United States Natural Gas Fund LP (UNG), gained 12.6%% and 6.5%, respectively.  

Gas prices spiked one year ago, as supply chain issues and geopolitical strife elevated production and transportation costs while consumer demand increased. Now, as the U.S. and Europe experience warm winters, dwindling demand has sent those prices plummeting.  

Gas prices tumbled 78% between September 2022 and February, Bank of America analysts wrote in a Monday note to clients. 

“The change in inventory trajectory and concerns about future demand, especially considering calls for a U.S. recession later in 2023, have pushed gas prices down,” they said, adding that prices may remain depressed for the first half of 2023 before rising again.  

While prices fell as temperatures this winter averaged 4.5 degrees above the 100-year average, summer cooling demand should boost futures later this year, according to Jay Hatfield, CEO of Infrastructure Capital Advisors. “We believe that we will eventually rally from the $2 range,” he said in emailed commentary to ETF.com.

‘Buy the Dip’ 

Despite the falling price in gas futures, ETF investors are betting on a reversal. Year to date, BOIL and UNG have brought in $1.7 billion in investor funds year to date, compared with the $275 million that exited the funds in the same period last year, according to ETF.com data.  

Much of the rally in flows could be attributed to a “buy the dip” mentality, according to Todd Sohn, ETF strategist at New York-based Strategas Securities.  

“There has already been a ton of money that got into these funds over the prior, call it, two months. Since this decline, it has really meaningfully accelerated,” he said in an interview with ETF.com.  

  

Contact Shubham Saharanat[email protected]        

Shubham Saharan is a markets reporter at etf.com. Before joining the company, she reported for Bloomberg and the Financial Times. Saharan is a graduate of Barnard College of Columbia University.