Natural Gas ETFs Attract Investors

Funds traded on the natural gas exchange rose as “buy the dip” investors seek to take advantage of the recent drop in commodity prices.

Interest in natural gas has surged despite a 70 percent drop in the commodity’s price over the past three months. It has now reached its lowest price since 2020. Despite the downturn, investors are taking the plunge and investing in natural gas ETFs.

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

A year ago, gas prices jumped as supply chain problems and geopolitical divisions pushed up production and transportation costs and consumer demand surged. Now that warm winters have arrived in the US and Europe, dwindling demand has led to a sharp drop in prices.

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

“A change in inventory trajectory and concerns about future demand, especially with calls for a U.S. recession in late 2023, have driven gas prices down,” they said, adding that prices could remain low into the first half of 2023, before than grow again.

While prices fell as the average temperature this winter was 4.5 degrees above the 100-year average, demand for summer cooling should boost futures later this year, according to Jay Hatfield, CEO of Infrastructure Capital Advisors. “We believe we will eventually move out of the $2 range,” he said in an email comment to ETF.com.

“Buy dip”

Despite the fall in the price of gas futures, ETF investors are betting on a reversal. Since the beginning of the year, BOIL and UNG have raised $1.7 billion in investor funds, compared with $275 million that was withdrawn from funds in the same period last year, according to ETF.com.

Todd Son, an ETF strategist at New York-based Strategas Securities, said much of the surge in flows could be due to a “buy the dip” mentality.

“These funds have already received a lot of money for the previous, let’s say, two months. After this decline, it really accelerated significantly,” he said in an interview with ETF.com.

Contact Shubham Saharan V [email protected]

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