Will the Recent Fall of UNG Continue?

The natural gas ETF United States Natural Gas (UNG) resumed its downward trend and shed 2.3% off its value during last week. Is the recent descent in UNG reach a halt anytime soon? How is the weather impacting the direction of UNG? Let’s tackle this issue.

UNG has declined by 5.5% since the middle of last month and by 8.5% since the beginning of the month. The sharp fall in its price was accompanied with a Contango in the natural gas market and a rise in the roll decay. As such, UNG has fallen by over 1 percentage point more than natural gas.

The chart above presents the normalized prices of UNG and natural gas (normalized to September 15th).

The changes in the weather are one of the key factors in impacting the changes in the storage development.

The chart below shows the changes in the national weather (shift from normal) and gap between the storage injection or extraction and the 5-year average.

As you can see, these two data sets are linked and the linear correlation of these two time series is 0.59 – a strong and robust positive correlation.

The rest of this analysis is at Seeking Alpha

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