Natural Gas Conversions Are A Bullish Sign For The Natural Gas ETF

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October 12, 2009 12:51pm ETF BASIC NEWS NYSE:UNG

natural-gas-runup“Thanks to natural gas prices coming down and more discoveries of American deposits utilities are debating whether to retrofit coal plants for gas. Big corporations such as

 AT&T (NYSE:T) and United Parcel Service (NYSE:UPS)  are beginning to convert large truck fleets from oil-based gasoline to natural gas.  Could this be a reason to start looking at going long the United States Natural Gas Fund, LP (NYSE:UNG),” Wall St Nation Reports.

“The United States Natural Gas Fund (UNG), the largest oil and gas exchange-traded product, recently issued new shares for the first time since July. The lengthy interval between new share issuances certainly wasn’t due to a lack of demand. In recent months, investors have been clamoring to get access to natural gas, bidding up shares of UNG to a huge premium and causing the fund to look and act more like a closed end fund than an ETF.   The UNG has bounced all over the place this year, $17 in May, $9 in September, and YTD the ETF is down 50%,” Wall St Nation Reports.

“Elevated Section of the Alaska PipelineFacing an uncertain regulatory environment and unrelenting demand from investors, (UNG) has for months found itself between a rock and a hard place. If UNG had issued new shares to satisfy investor demand, the fund would have put itself in jeopardy of violating regulations expected to be issued by the CFTC regarding position limits on futures contracts. In such a scenario, UNG could potentially be forced to sell off a huge chunk of its holdings in the near future, to the detriment of shareholders. But by refusing to issue new shares, UNG subjected shareholders to a wild ride, as the premium on the fund soared to near 20% above net asset value (NAV) this summer.  A reason to go long on the UNG?  How about Big Business,” Wall St Nation Reports. 

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The investment seeks to replicate the performance, net of expenses, of natural gas. The trust will invest in futures contracts on natural gas traded on the NYMEX that is the near month contract to expire. It is nondiversified.

Chart for United States Natural Gas (UNG)






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