Monday, August 31, 2009

UNG Still Ugly

I've been writing a lot about natural gas this summer, and I've tried to back off a bit lately. But its important to keep an eye on what is going on. Supply is still high and pushing prices lower. We've got to be getting close to a price where producers can't make money producing gas and will need to shut off production. You take that, and add weather factors like a cool summer and a (so far) quiet hurricane season, and prices have fallen. One interesting thing here is that gas hasn't gotten and help from the "recovery." Now, I've been skeptical of the recovery, but to those who say its real, why hasn't gas traded higher in anticipation of higher commercial usage? Why hasn't rail traffic of raw goods increased significantly?

The primary trading vehicle for natural gas, UNG, has its own set of issues. Regulators have been coming after them and they stopped issuing new shares. Investors want to be able to play natural gas, but with no new shares the fund stops tracking what its meant to track. UNG now trades at around a 20% premium supposedly. Thats not to say it can't continue, but if investors get fed up, UNG could fall further. I'm still holding my shares, but UNG is the problem, rather than gas to me. I like the idea of getting into gas at these prices, but the uncertainty with UNG bugs me.

Here are some links to info on UNG today.

http://seekingalpha.com/article/159042-natural-gas-etf-the-short-term-story?source=yahoo

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aDSp1GtwaRpE

Disclosure: Long UNG

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