After a turbulent week for natural gas, analysts are throwing in the towel.
The energy commodity saw its value plummet on warm weather, weak demand and historically high supplies at the end of February and have seen the trend continue into March. Natural gas futures are down 23.5 percent from their 52-week high even as U.S. equities have seen steady strength and economic growth indicators suggest rising demand for commodities is on the horizon.
With weak futures prices, analysts are now warning that the outlook for natural gas may remain weak over the long term. Citing Wood Mackenzie, analyst Prajit Ghosh, the Houston Chronicle reports that improved efficiencies in renewable energy, particularly rising solar power usage and better yields from wind power, are fundamental headwinds to natural gas demand that will limit the commodity's upside in the future.
Ghosh still sees short-term upside despite his long-term concerns. According to the Chronicle, "Ghosh estimated that natural gas prices could rise more than 40 percent this year to as high as $3.70 per million British thermal units, up from an average of $2.62 in 2016." BTUs are currently 6.4 percent above their average price in 2016.
The future of VelocityShares 3x Long Natural gas ETN (UGAZ) and United States Natural Gas (UNG) is at stake. UGAZ jumped 2.8 percent following the publication of Ghosh's prognostications, but the leveraged fund remains down 66.6 percent year to date. As a non-levered ETF, UNG has fared better for the year, losing only 27 percent of its value in 2016. Natural gas remains the worst performing commodity of 2017. Year to date, the United States Oil Fund (USO) has fallen 2.7 percent.