Natural Gas ETFs Stuck In Between Idalia & Chevron Strike

United States Natural Gas ETF UNG added about 5% on Aug 30 despite the landfall of category 3 hurricane Idalia in Florida. Traders eyed the potential demand destruction due to the power outages that could be imposed in the near term by Hurricane Idalia.

But there have been looming concerns of strikes at Chevron’s LNG plants in Australia. Considering Australia, alongside Qatar and the United States, ranks among the top LNG producers, any disruption in its supplies could trigger global price rises.

Then there is high power demand from Texas, which is still recovering from an unparalleled heatwave, causing near-record power demand. The state’s primary power grid operator, ERCOT, suggested a tight supply-demand balance, with supplies surpassing demand by a mere 2,000 megawatts. In order to cope with the supply constraints, ERCOT previously advised consumers to conserve power after sunset.

Supply-Demand Projections

In August, there was a slight decrease in the average gas output across the lower 48 U.S. states, dropping from 101.8 bcfd in July to 101.1 bcfd. Despite the alleviation of the heatwave, meteorological forecasts suggest that temperatures hotter than the norm will persist until mid-September.

However, Refinitiv anticipates a 1.3 bcfd reduction in U.S. gas demand for the upcoming week, considering the shift toward seasonal temperature patterns. Simultaneously, U.S. LNG exports experienced a decline in August, primarily attributed to operational cutbacks at Cheniere Energy’s facilities, as quoted on FX Empire.

What Lies Ahead?

Given these aforementioned events, the immediate projection for U.S. natural gas inclines to a bearish stance, influenced by the potential for demand disruption due to Hurricane Idalia and the expected onset of cooler weather conditions — both of which will cause lower demand.

However, there is a ray of hope. The U.S. dollar, in the meantime, may face some selling pressure after peaking several times last week. As the revised U.S. GDP growth numbers for Q2 came in a bit lower, the economy showed signs of cooling and the consumer confidence fell, the falling greenback may go in favor of commodity prices as most commodities are normally priced in the U.S. dollar.

ETFs in Focus

United States Natural Gas ETF (UNG)

The United States Natural Gas ETF LP is an exchange-traded security designed to track in percentage terms the movements of natural gas prices. The expense ratio is 1.06% (read: 6 Best-Performing ETFs of Last Week).

First Trust Natural Gas ETF (FCG)

The underlying ISE-Revere Natural Gas Index is an equal-weighted index comprising exchange-listed companies that derive a substantial portion of their revenues from the exploration and production of natural gas. The fund charges 60 bps in fees and yields 3.42% annually.

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First Trust Natural Gas ETF (FCG): ETF Research Reports

United States Natural Gas ETF (UNG): ETF Research Reports

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