Home Business UNG ETF Posts Over 150% Return This Year as Gas Prices Surge

UNG ETF Posts Over 150% Return This Year as Gas Prices Surge

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(Bloomberg) — As the price of global commodities fluctuate amid tight supplies and inflationary pressures, the US Natural Gas Fund (UNG) has gained 158% this year, making it the sixth-best performer of any US ETF.

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(Bloomberg) — As the price of global commodities fluctuate amid tight supplies and inflationary pressures, the US Natural Gas Fund (UNG) has gained 158% this year, making it the sixth-best performer of any US ETF. 

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UNG tracks the performance of natural gas futures contracts and reflects the daily price changes of gas delivered at the Henry Hub in Louisiana. The fund also earns interest on such collateral holdings as cash, US treasuries and money market funds.

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While high inflation and recession fears pushed prices of many commodities down, natural gas stands alone as the market remains extremely tight. US natural gas prices soared 150% this year on tight inventories and rising demand both domestically and internationally. Historically, US natural gas prices follow domestic demand and weather patterns, but now, the country exports more gas to Europe as the continent grapples with lower supplies from Russia.

John Love, the president and CEO of US Commodity Funds LLC, where he manages UNG along with 11 other commodity funds, says natural gas prices are almost entirely driven by demand and won’t be greatly affected by any moves from the Federal Reserve. 

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“Natural gas prices and the Fed funds rate historically have virtually no correlation,” Love said. “If you look at the four rate hikes to date this year, it’s hard to say prices were affected by Fed moves rather than fundamentals.” 

The natural gas gains have come despite the most aggressive rate hikes in decades from the Fed. 

“It’s possible some noise occurs even in natural gas markets around the next Fed meeting,” Love said. “Don’t mistake the noise for a signal.” 

Natural gas prices can climb even higher as the real test for the natural gas market and inventories will happen when the winter months approach and demand for gas will go up. 

“I do expect gas prices to stay elevated as low storage and European energy crisis are driving the demand,” Love said. “If the Fed manages to slow the economy, this could have some effect on demand from industrial use, but that could be offset by less incentive for producers to spend” which could tighten the market even further.



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