A Bearish Outlook On The Natural Gas ETF (UNG)

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July 20, 2009 12:04pm ETF BASIC NEWS NYSE:UNG

natural-gas“The largest exchange-traded fund for natural gas, so popular that it ran out of shares two weeks ago, has lost 44 percent this year and probably will keep falling until winter, trailing the fuel it’s supposed to track

,” Bloomberg Reports.

“The United States Natural Gas Fund will suffer from record- high gas inventories and seasonal prices hitting the ETF harder than the fuel, said Teri Viswanath, the director of commodities research at Credit Suisse Securities USA in Houston. Investors piled into the fund this year, driving up its number of outstanding shares 11-fold,” Bloomberg Reports.

“The amount of interest in this fund is a surprise given the trend in gas is down and not looking to change any time soon,” said Tom Orr, the director of research for Weeden & Co. LP, a Greenwich, Connecticut, securities brokerage, in a telephone interview. He predicted natural gas, this year’s worst performing major commodity, will fall below $3 per million British thermal units next month, from $3.572 at 10:10 a.m., and rise to $4 in the fourth quarter.

“The $4.6 billion fund, managed by United States Commodity Fund LLC in Alameda, California, made 300 million new shares available May 6 and grew to 347.4 million shares before running out July 7. It’s awaiting Securities and Exchange Commission approval to sell up to a billion more. “If I knew then what I know now, we certainly would have registered a lot more shares than 300 million back a few months ago,” said John Hyland, the ETF’s chief investment officer,” Bloomberg Reports.

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