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El Nino Likely to Boost Natural Gas ETFs in 2H23

Soaring temperatures have become the norm this year, with a frightening surge in some regions. The culprit? El Nino, a climate phenomenon characterized by an abnormal warming of the Pacific Ocean. Its effect, combined with climate change, has resulted in the warmest global temperatures on record (read: ETF Areas to Win on El Nino in 2023).

Natural Gas Demand on Rise

Thanks to the intense heat, demand for air-conditioning has surged. With natural gas powering nearly 40% of U.S. utility-scale electricity generation as per the U.S. Energy Information Administration, the scorching heat mean a higher cooling demand and the resultant usage of natural gas.

Natural Gas Trading at a Huge Discount to All-Time High

Last year, natural gas prices jumped to their highest level since 2008. After a protracted bearish trend, natural gas futures rallied from over $15 per metric million British thermal units (MMBtu) to $1.43. With the current natural gas price at $2.65 per MMBtu, it's still considerably lower than last August's peak, offering leeway for further rise.

Geopolitical Crisis to Boost Natural Gas Prices

Geopolitical factors add to the potential for price growth. Europe's heavy dependance on natural gas supplies from Russia has been disturbed due to the ongoing war in Ukraine and associated sanctions on Russia. As a result, the United States is under pressure to supply liquified natural gas (LNG) to countries affected by the supply disruption.

Hot Future of Natural Gas

At a current level of $2.60 per MMBtu, U.S. natural gas futures' downside appears limited. This is especially true given the prevalence of El Nino weather pattern this year. Against this backdrop, below we highlight a few natural gas ETFs and ETNs that could see unprecedented gains in the coming days.

ETFs in Focus

United States 12 Month Natural Gas ETF UNL

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The underlying Natural Gas Price Index is the near month futures contract to expire and the contracts for the following 11 months, for a total of 12 consecutive months. The fund charges 90 bps in fees.

United States Natural Gas Fund LP UNG

The underlying Natural Gas Price Index is the futures contract on natural gas as traded on the NYMEX. The expense ratio of the fund is 1.06%.

ProShares Ultra Bloomberg Natural Gas BOIL

The product looks to track two times (2x) the daily performance of the Bloomberg Natural Gas Subindex. The underlying Bloomberg Natural Gas Subindex is intended to reflect the natural gas segment of the commodities market. The index consists of futures contracts on natural gas. The product charges 95 bps in fees.

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United States 12 Month Natural Gas ETF (UNL): ETF Research Reports

ProShares Ultra Bloomberg Natural Gas (BOIL): ETF Research Reports

United States Natural Gas ETF (UNG): ETF Research Reports

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Zacks Investment Research