KOLD vs BOIL: Which is the better natural gas ETF to buy?
The ProShares Ultra Bloomberg Natural Gas ETF (BOIL) crashed by almost 9% on Monday as the natural gas prices slipped. At the same time, the ProShares UltraShort Bloomberg Natural Gas ETF (KOLD) jumped by almost 9%. KOLD has soared by over 84% in the past 12 months while BOIL has crashed by almost 80%.
Natural gas prices have crashed
KOLD and BOIL ETFs have been in the spotlight in the past few years as the price of natural gas has slumped. It has crashed by more than 75% from its highest level in 2022 when Russia invaded Ukraine.
Gas has crashed as the world has moved to an abundance as countries continue pumping vast amounts. The United States has become the biggest oil producer and its amounts could continue in the coming years.
Other countries like Russia, Iran, Canada, Algeria, Qatar, and Norway are the other big producers. The US in particular has boosted gas production in a bid to supply Europe and help the continent move from relying on Russia.
The most recent catalyst for the natural gas price was the decision by a judge to halt Joe Biden’s pause of liquified natural gas applications. The judge, James Cain of Louisiana sided with Republican state attorney generals, who argued that the pause was unconstitutional.
Natural gas production could slow
The commodity market tends to rebalance itself over time. In this case, there are signs that natural gas producers will start to slow their output in the coming years. The most recent data by EIA shows that dry gas production will drop by 0.2% this year. Data has also shown that the number of gas wells are falling.
Associated gas production or gas supply from oil wells, is expected to do well because American producers are still pumping more oil because of higher prices. The US is expected to produce over 13 million barrels per day this year.
At the same time, data also show that demand from the US is expected to rise. With prices significantly lower from the 2022 high, demand will come from utilities. Also, more export capacity will come online this year from the Plaquemines Phase 1 and Corpus Christi Stage 3.
The challenge for natural gas is that European demand is expected to flat line this year. According to ACER, demand will likely reach its peak this year because of reductions in structural demand driven by the bloc’s decarbonisation goals.
Better buy between KOLD and BOIL ETFs?
Natural gas price chart
Therefore, the question is on which leveraged natural gas ETF one should consider buying this year. BOIL, which tracks the price of natural gas in a leveraged manner and has $461 million in assets, benefits when gas prices rise.
KOLD, on the other hand, does well when the price of natural gas is in a downward trend. Therefore, carrying out a technical analysis can help us identify the better leveraged ETF to invest in.
On the daily chart shows that the price of natural gas has continued crashing in the past few weeks. It has now moved below the 100-day and 50-day moving averages, meaning that bears are in control.
Gas has also dropped below the important support level at $2.52, its lowest swing on May 31st while the Relative Strength Index (RSI) has turned south.
Therefore, the outlook for natural gas is bearish, with the next point to watch being at $2, which is about 18% below the current level. If this forecast is accurate, it then makes sense to invest in the ProShares UltraShort Natural Gas ETF (KOLD).
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