Growing Interest In UNG ETF Spurs Natural Gas Price Rally

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May 14, 2009 10:06am NYSE:UNG

natural-gasThe front-month natural gas NYMEX contract has rallied 45% since the end of April. The price rally has taken many by surprise because fundamentals have not changed. Industrial demand remains down, liquefied natural gas (LNG) imports are starting to show up and storage inventories will likely hit a new record this fall.

Some analysts believe the rally in natural gas prices is due to a nearing economic recovery, but Energy Solutions, Inc. doubts that is the case. “History shows that natural gas prices rally in the second quarter of the year,” says Valerie Wood, President of Energy Solutions, Inc. “The rally usually starts a little earlier than it did this year, but it does tend to peak in May. So, the timing of this rally isn’t that much different from past years.”

“Another factor driving this rally involves a little speculative déjà vu,” says Wood. There has been a surge of investor interest in United States Natural Gas Fund, LP (UNG), an exchange-traded fund. When UNG is purchased, the portfolio of products that make-up UNG are purchased. One of those products are natural gas NYMEX futures contracts. “If the purchase of UNG is aggressive, it can very well cause a quick rally in natural gas prices, which in turn increases the value of UNG and makes investors very happy. This prompts investors to throw more money at UNG, which could be a driving force behind another rally. This same type of investment happened last year, albeit with other types of funds,” says Wood.

Full Story:  http://www.transworldnews.com/NewsStory.aspx?id=88544&cat=1



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