On a day when stock and bond prices were mostly negative, the ProShares Ultra Bloomberg Natural Gas ETF (BOIL), has jumped 13% this week, as winter weather threatened to affect up to 80 million people across the U.S, increasing heating demand and placing further pressure on already tight natural gas supplies.
BOIL has surged 80% over the past three months, amid expectations that the new Trump Administration would adopt friendlier fossil fuel policies and natural gas prices have risen.
The first storm, starting Tuesday, is expected to bring heavy snow and ice to the mid-Atlantic region, including areas such as Washington, D.C., Baltimore, and parts of western North Carolina. Virginia has declared a state of emergency in anticipation of hazardous conditions.
As the initial storm moves out, a subsequent system is forecast to develop, spreading heavy snow from the Midwest to the Northeast by Wednesday night. This storm is expected to exacerbate travel disruptions and increase the risk of power outages in the affected regions.
Historically, severe cold spells increase heating demand, leading to higher natural gas consumption. This surge in demand can strain supply systems, especially if production or transportation infrastructure is disrupted by adverse weather conditions.
In addition to extreme weather conditions this winter, the 2024 US presidential election has had a notable impact on natural gas prices, as the non-leveraged United States Natural Gas (UNG) has surged more than 45% in the past three months.
The Trump administration has already implemented policies favoring increased domestic oil and gas production. This included reversing previous pauses on liquefied natural gas (LNG) export permits, aiming to boost US energy output and reduce prices.
In response, natural gas prices have shown an upward trend, reflecting market optimism about expanded production and export opportunities. The Energy Policy Research Foundation observed that natural gas equities, including producers and LNG entities, have risen since the election, indicating positive sentiment toward the sector’s prospects.
However, some analysts caution that higher domestic natural gas prices can be inflationary, especially if they persist.
In summary, while the election has spurred policies aimed at bolstering natural gas production and exports, the resulting market dynamics have contributed to rising natural gas prices.
Investors should note that natural gas prices can be volatile, and BOIL is a leveraged ETF aiming for twice the daily performance of its benchmark. This leverage can lead to greater volatility, especially over extended holding periods. Therefore, BOIL is generally more suitable for short-term trading strategies rather than long-term investments.
