The ProShares Ultra Bloomberg Natural Gas ETF (BOIL) fell nearly 9% on Monday as natural gas prices fell. Meanwhile, the ProShares UltraShort Bloomberg Natural Gas ETF (KOLD) jumped nearly 9%. KOLD is up more than 84% over the past 12 months while BOIL has fallen nearly 80%.
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Natural gas prices have plummeted
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The KOLD and BOIL ETFs have been in the spotlight in recent years due to the collapse in the price of natural gas. It has fallen more than 75% from its 2022 high, when Russia invaded Ukraine.
Gas has collapsed as the world has moved toward abundance as countries continue to pump out large quantities. The United States has become the world’s largest oil producer and its quantities could continue for years to come.
Other countries such as Russia, Iran, Canada, Algeria, Qatar and Norway are the other major producers. The United States in particular has increased gas production in an effort to supply Europe and help the continent move away from relying on Russia.
The most recent catalyst for the price of natural gas was a judge’s decision to halt Joe Biden’s pause on liquefied natural gas applications. The judge, James Cain of Louisiana, sided with Republican state attorneys general, who argued that the pause was unconstitutional.
Natural gas production could slow
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The commodity market tends to rebalance over time. In this case, there are signs that natural gas producers will start to slow their production in the coming years. The latest data from the EIA shows that dry gas production will decline by 0.2% this year. The data also showed that the number of gas wells is decreasing.
Associated gas production or gas supply from oil wells is expected to do well as US producers are still pumping more oil due to higher prices. The US is expected to produce over 13 million barrels per day this year.
At the same time, the data also shows that demand from the United States is expected to increase. With prices significantly lower than the 2022 high, demand will come from utilities. In addition, more export capacity will be available this year from Plaquemines Phase 1 and Corpus Christi Stage 3.
The challenge for natural gas is that European demand is expected to plateau this year. According to ACER, demand will likely peak this year due to structural demand reductions driven by the bloc’s decarbonization goals.
Is it better to buy between KOLD and BOIL ETFs?
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Natural gas price chart
So the question is which leveraged natural gas ETF should you consider buying this year. BOIL, which tracks the price of natural gas on a leveraged basis and has $461 million in assets, benefits when gas prices rise.
KOLD, on the other hand, performs well when the price of natural gas is trending downward. Therefore, performing a technical analysis can help us identify the best leveraged ETF to invest in.
The daily chart shows that the price of natural gas has continued to fall in recent weeks. It has now moved below the 100-day and 50-day moving averages, which means that the bears are in control.
Gas also fell below the important support level at $2.52, its swing low on May 31, while the Relative Strength Index (RSI) turned lower.
Therefore, the outlook for natural gas is bearish, with the next point to watch at $2, which is about 18% below the current level. If this forecast is accurate, it makes sense to invest in the ProShares UltraShort Natural Gas ETF (KOLD).
This article was translated from English with the help of AI tools, and then reviewed by a local translator.
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