10-Q: United States 12 Month Natural Gas Fund (UNL) Reports Mixed Results in Q2 2024 Amidst Market Volatility

The United States 12 Month Natural Gas Fund (UNL) experienced a decrease in net asset value (NAV) per share despite an increase in benchmark futures contracts, amidst volatile natural gas market conditions during the second quarter of 2024.

Summary

• The United States 12 Month Natural Gas Fund, LP (UNL) reported its financial results for the quarter ended June 30, 2024.
• The fund's investment objective is to track the average daily percentage changes in the spot price of natural gas, as measured by the average of the prices of 12 natural gas futures contracts.
• For the six months ended June 30, 2024, UNL's per share NAV decreased by 3.50% from $8.58 to $8.28.
• The average daily change in the benchmark futures contracts was 0.032%, while the average daily change in UNL's per share NAV was 0.045% for the 30-valuation days ended June 30, 2024.
• The fund held 576 natural gas futures contracts on the NYMEX as of June 30, 2024.
• The management fee was reduced from 0.75% to 0.60% per annum effective May 1, 2024.
• The fund's expenses consist of management fees, brokerage fees, licensing fees, and other operational costs.
• The natural gas market experienced both contango and backwardation during the six months ended June 30, 2024.
• The fund's ability to track its benchmark is impacted by transaction costs, expense ratios, and the performance of other natural gas-related investments.
• The fund is subject to market risk, credit risk, and regulatory risks associated with commodity interest trading.

Sentiment

Score: 6

Explanation: The sentiment is neutral. While the NAV decreased, the fund largely met its tracking objective and reduced its management fee. Market volatility and geopolitical risks remain concerns.

Positives

• The management fee was reduced from 0.75% to 0.60% per annum effective May 1, 2024, which should reduce expenses.
• For the 30-valuation days ended June 30, 2024, UNL's NAV performed within the plus or minus 10% range established as its benchmark tracking goal.
• Average interest rates earned on short-term investments held by UNL, including cash, cash equivalents and Treasuries, were higher during the six months ended June 30, 2024, compared to the six months ended June 30, 2023.

Negatives

• UNL's per share NAV decreased by 3.50% during the six months ended June 30, 2024.
• The fund is subject to market risk, credit risk, and regulatory risks associated with commodity interest trading.
• The fund's ability to track its benchmark is impacted by transaction costs, expense ratios, and the performance of other natural gas-related investments.

Risks

• The fund is exposed to commodity price risk, particularly natural gas price risk.
• The fund is subject to credit risk related to counterparties in futures contracts and OTC swaps.
• Regulatory changes, including position limits and margin requirements, could impact the fund's ability to meet its investment objective.
• Geopolitical risks, such as the Russia-Ukraine war and Middle East conflict, could lead to supply disruptions and increased volatility.
• Infectious disease outbreaks, like COVID-19, could negatively affect UNL and the valuation and performance of UNL's investments.

Future Outlook

The report discusses potential impacts from geopolitical events, regulatory changes, and market conditions on the fund's performance. It also mentions the potential for increased demand for natural gas to power AI data centers.

Management Comments

• USCF believes that market arbitrage opportunities will cause daily changes in UNLs share price on the NYSE Arca on a percentage basis to closely track daily changes in UNLs per share NAV on a percentage basis.
• USCF further believes that daily changes in the average prices of the Benchmark Futures Contracts have historically closely tracked the daily changes in spot price of natural gas.
• USCF believes that the net effect of these relationships will be that the daily changes in the price of UNLs shares on the NYSE Arca on a percentage basis will closely track the daily changes in the spot price of a MMBtu of natural gas on a percentage basis, plus interest earned on UNLs collateral holdings, less UNLs expenses.

Industry Context

The report provides context on the natural gas market, including factors influencing prices such as domestic supply and demand, seasonal patterns, and increasing international demand. It also discusses the impact of the Russia-Ukraine war on European natural gas supply-demand dynamics.

Comparison to Industry Standards

• The report does not provide a direct comparison to specific competitors.
• However, it does discuss the fund's tracking of its benchmark, which is a common metric for evaluating the performance of commodity ETFs.
• The report also includes correlation data comparing natural gas price movements to other energy commodities and investment asset classes, providing a broader industry context.

Legal Proceedings

• The report discusses ongoing legal proceedings involving USCF and USO, including the Optimum Strategies Action, the Lucas Class Action, the Wang Class Action, the Mehan Action, and In re United States Oil Fund, LP Derivative Litigation.
• These legal proceedings primarily relate to disclosures and actions taken during extraordinary market conditions in 2020.

Related Party Transactions

• The report discloses fees paid to USCF for management services, as well as payments for services provided by the Marketing Agent and BNY Mellon.
• It also mentions a licensing agreement with the NYMEX.

Stakeholder Impact

• The fund's performance directly impacts shareholders through changes in the NAV per share.
• The management fee reduction benefits shareholders by lowering expenses.
• Market risks and regulatory changes could affect the fund's ability to meet its investment objective, potentially impacting shareholder returns.

Next Steps

• The fund will continue to monitor market conditions, regulatory requirements, and risk mitigation measures.
• USCF will continue to manage UNL's portfolio to track the average daily percentage changes in the spot price of natural gas.

Key Dates

Keywords

natural gas, futures contracts, UNL, commodity fund, NAV, NYMEX, USCF, contango, backwardation, derivatives