Among the top stock market movers today is the ProShares Ultra Bloomberg Natural Gas (NYSEARCA:BOIL) exchange-traded fund (ETF). This surge is clearly due to a rally in natural gas prices generated by recent weather trends. With rising temperatures posing extreme risks to certain regions, it certainly makes sense that the BOIL ETF’s holdings would be seeing a steep uptick in price. With volatility expected, though, investors have plenty of questions.
What’s Happening With the BOIL ETF
Pre-market trading on Wednesday saw the BOIL ETF shoot up by more than 10%. It hasn’t stopped rising since, currently up more than 24%. Today’s gains put the fund on an excellent track. It is currently up 36% for the week and 120% for the month.
This isn’t surprising when we consider the surge of natural gas prices recently. Benchmark prices recently surpassed $5, and with looming cold weather predictions, they could rise even higher. Many eyes are on Texas, but other parts of the country stand to be effected as well.
Why It Matters
As Natural Gas Intelligence reports, the country is facing an extreme cold front combined with diminishing inventories. It’s the perfect economic landscape for natural gas prices to rise. As a result, the BOIL ETF is on an upward trajectory. The questions that remain unanswered is just how cold will it get? And how long can BOIL keep heating up?
Texas is preparing for the worst, but it isn’t the only state on watch. Oklahoma and Arkansas have both seen their gas supplies fall by 22% recently, according to Bloomberg. This is due in part to the freezing of oil pipelines that has limited the flow of fuel. The cold winter has made it difficult for analysts to accurately assess natural gas supply, leading to more volatility in prices. And now, demand is nearing noteworthy highs. According to Eli Rubin of EBW AnalyticsGroup, upcoming cold temperatures are “expected to lower production and set up a demand scenario where more than 700 billion cubic feet of gas could be withdrawn from storage over the next three weeks.”
Natural gas stocks such as UGI (NYSE:UGI) and Star Group (NYSE:SGU) are also performing well this week amid rising prices. InvestorPlace analyst Louis Navellier recently named both to a list of utility stocks to buy for the heating crisis. Investors should note that the BOIL ETF, instead of tracking a basket of natural gas stocks, is a leveraged play on natural gas futures. Its daily price corresponds with 2x the performance of the Bloomberg Natural Gas Subindex.
What It Means
All this suggests that the BOIL ETF will keep rising as temperatures continue to drop. While natural gas prices are indeed prone to volatility, the demand is undeniable. Everyone remembers what happened the last time Texas was hit by an extreme cold front. No one wants to repeat that, and nearby states don’t want to share that experience.
On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
