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A Bad Day for Natural Gas (UNG)

“The best laid schemes o’ mice an’ men. Gang aft a-gley”.

–Robert Burns

Or as a Yiddish saying goes: “Man plans, God laughs.” There is no better example of this than what has happened with natural gas this month. With energy supplies being challenged by Russia’s invasion of Ukraine, and the forced reduction of U.S. energy production, it is logical to assume that natural gas would be a ‘sure thing’ as an investment target. But no. This morning the United States Natural Gas Fund (UNG) was down almost -30% from last week’s high. What the . . . ?!

Well, there is a reason for today’s down move. Earlier this month a liquefied natural gas (LNG) facility in Freeport, Texas, which produces about 20% of U.S. production of LNG, had a fire, which caused it to shut down. The original estimate to get it back up and running was three weeks, but this morning that was revised to the end of this year, meaning that that there will be a shortage of LNG lasting many months. Since the Freemont facility produces LNG for export, that natural gas will be available for the domestic market while the facility is down. This increase in supply should cause the price to go down. Which is what we saw this morning.

While -30% down seems excessive on its face, a closer look at the chart reveals that UNG is highly volatile, with moves far in excess of that in both directions within the last year. In that context, this recent decline doesn’t seem that serious. There is a pretty good looking support line where we might see some firming and the beginning of a new advance. Considering how serious the energy shortage is becoming, that does not seem out of the question.

— Carl Swenlin

Technical Analysis is a windsock, not a crystal ball. –Carl Swenlin

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