Trade natural gas through the BOIL and KOLD ETFs (NYSEARCA:KOLD)

After trading above $10 per million British thermal units in August 2022 for the first time since 2008, natural gas futures on the US Nymex exchange fell, reaching a low of $1.481 per million British thermal units in March 2024 at the end of the peak season. Application 2023/2024. The +85% decline caused a significant abundance of short positions Positions in the natural gas futures market.

There are few things that can cause a futures market to rebound like too many short speculative positions. Natural gas has a long history as a volatile commodity, experiencing cyclical boom-and-bust price action.

Nearby natural gas futures have nearly doubled from the March 2024 low to the May 2024 high in two months. As the energy commodity moves into the cooling season, many factors could cause significant price fluctuations over the coming weeks and months. The Ultra Bloomberg Natural Gas 2X ETF (BOIL) is supercharging already volatile U.S. natural gas The gas futures market is in an uptrend. Meanwhile, the Ultrashort Bloomberg Natural Gas -2X ETF (NYSEARCA:COLD) provides leverage on the downside.

Leveraged ETFs like BOIL and KOLD require careful attention to risk-reward dynamics. They experience significant time decay when the underlying market does not move in the expected direction or remain stable.

High open interest likely caused natural gas prices to rise within the month

Open interest measures the total number of open long and short risk positions in the futures market. Lower open interest tends to increase volatility, as the measure is an indicator of liquidity. In highly liquid markets, when open interest reaches a high level, it often results in price reversals as the measure determines whether there is an abundance of risky long or short speculative positions.

Nearby natural gas futures prices on the Nymex exchange fell to a low of $1,481 in March 2024.

The monthly chart shows that when US natural gas futures bottomed in March 2024, the measure of open interest rose to more than 1.587 million contracts, the highest level since an all-time high of 1.622 million in September 2018. The high open interest indicated led to an abundance of speculative short positions, driving the recovery higher even though natural gas was entering the shoulder months of the spring when heating and cooling demand fell to a yearly low.

The daily chart of NYSE natural gas futures for July shows a 48.5% rise from the February 15 low of $2,128 to $3,161 on May 23, 2024. High open interest likely sparked the rally , sending the ongoing contract up 109% from $1,481 in March. to $3,096 per million British thermal units in June.

The natural gas rally ran out of its bullish momentum and rebounded

July futures ran out of a late May uptrend.

The daily chart for July shows a 20.3% decline from $3,161 to $2,518 per mmBtu. Meanwhile, open interest fell below the 1.5 million contract level, indicating liquidation of speculative positions as the rally runs out of steam. Open interest decreased as the price of natural gas rose due to the closing of speculative positions on risk positions. However, after finding a bottom at just over $2.50, natural gas futures rebounded and rose to over $3 per mmBtu again.

The cooling season is looming before the market prepares for the winter of 2024/2025

The natural gas futures market is now at the start of the 2024 cooling season, when air conditioners will be running overtime to combat hot summer temperatures. Since natural gas is the primary component of power generation, high temperatures increase the demand for electricity.

When temperatures begin to fall in a few months, the natural gas market will prepare for the upcoming 2024/2025 winter season, when the natural gas futures market tends to experience a seasonal high as uncertainty about heating demand reaches its peak.

Stocks still bearish – US energy policy is up for election in November – War in Europe is another factor

Natural gas inventories in the United States remain at levels that indicate an abundance of inventory to meet any upcoming demand.

Source: Environmental Impact Assessment

As of May 31, natural gas inventories across the United States stood at 2.893 trillion cubic feet, 14.8% above the year-ago level at the end of May and 25.1% above the five-year average.

While inventories are high and the price of natural gas is relatively low, there are two factors that could cause increased volatility in the energy commodity over the coming months.

Natural gas and other fossil fuels are on the ballot in the November 2024 US election. Current President Biden prefers to combat climate change by supporting alternative and renewable fuels and discouraging all hydrocarbons. He prefers former President Trump and the opposition Republican Party.”Baby drill drill” And “frack-baby-frackAmerican energy independence approach. The election will determine whether production and consumption of crude oil, coal, and natural gas will increase or whether wind, solar, and other alternatives will replace fossil fuels over the coming years. We could see a lot of volatility in the natural gas futures arena in the lead-up to and after the early elections in November.

Meanwhile, the war in Ukraine could impact European natural gas supplies, as Russia is a leading producer. Since American natural gas can now travel around the world by ocean liners in liquid form, demand for LNG from Europe could deplete American supplies in the coming months and years. Therefore, the ongoing conflict remains an important factor for European and US natural gas prices. Natural gas prices rose to more than $10 per million British thermal units, the highest since 2008, in August 2022, as European prices reached all-time highs following Russia’s invasion of Ukraine.

Expect Volatility – BOIL and KOLD are short-term US natural gas trading instruments

Natural gas is a combustible energy commodity in its natural form. Since 1990, when natural gas futures began trading on the Nymex division of the Chicago Mercantile Exchange, the price has seen boom-and-bust price action.

Nymex futures are the most direct route to a risk position in natural gas. The U.S. Natural Gas Fund, LP ETF (UNG) tracks volatile U.S. natural gas futures prices. Turbocharging the price action on both the upside and downside are the ProShares Ultra Bloomberg Natural Gas ETF, BOIL, and the ProShares UltraShort Bloomberg Natural Gas ETF, KOLD.

Natural gas prices rose in July by 48.5% from the lowest level recorded in mid-February to the highest level in late May. The price fell by 20.3% from the peak recorded on May 23 to the lowest level recorded on May 31 of $2.518 per million British thermal units. Over the same period, UNG stock rose 48.4% and fell 19.6%, as the unleveraged ETF did an excellent job tracking July futures.

The BOIL and KOLD ETF products boosted results during the rally and correction.

BOIL rose 83.8% from $13.45 in mid-February to $24.72 per share in late May. At $22.36 per share, BOIL had approximately $606 million in assets under management. BOIL trades over 9.68 million shares per day on average and charges a management fee of 0.95%.

KOLD rose 51.33% from $36.31 in late May to $54.95 per share on May 31 as natural gas prices corrected lower. At $36.46, KOLD had about $140 million in assets under management. KOLD trades an average of 3.15 million shares per day and charges a management fee of 0.95%.

BOIL and KOLD are short-term trading instruments that amplify price movement in the natural gas futures market on the US NYMEX exchange. While leveraged ETFs provide guidance, they suffer from time decay that causes them to quickly lose value when natural gas prices move contrary to expectations or remain stable.

The odds favor a lot of volatility in the natural gas futures arena over the coming months. BOIL and KOLD are valuable trading tools that can enhance trading, but are not suitable for medium or long term risk positions.