10-Q: United States 12 Month Natural Gas Fund (UNL) Reports Q3 2024 Results

United States 12 Month Natural Gas Fund, LP (UNL) reports its financial results for the quarter ended September 30, 2024, noting a decrease in NAV per share and discussing market factors influencing natural gas prices.

Summary

• United States 12 Month Natural Gas Fund, LP (UNL) has released its financial report for the quarter ended September 30, 2024.
• The fund's investment objective is to reflect the average daily percentage changes in the spot price of natural gas, measured by the average of prices of 12 natural gas futures contracts.
• As of September 30, 2024, UNL had 2,550,000 shares outstanding.
• The NAV per share decreased from $8.58 at the end of 2023 to $7.92 as of September 30, 2024, representing a (7.69)% decrease.
• The average price of the Benchmark Futures Contracts increased 18.17% from the end of 2023 through September 30, 2024, finishing the quarter at $3.272.
• For the 30-valuation days ended September 30, 2024, the average daily change in the average of the prices of the Benchmark Futures Contracts was 0.209%, while the average daily change in the per share NAV of UNL over the same time period was 0.220%.
• The fund invests primarily in natural gas futures contracts and, to a lesser extent, in other natural gas-related investments.
• The management fee was reduced from 0.75% per annum to 0.60% per annum effective May 1, 2024.
• The report discusses factors affecting natural gas prices, including production levels, storage, exports, and geopolitical events like the Russia-Ukraine war.
• Legal proceedings involving USCF and related funds are ongoing, including the 'In re: United States Oil Fund, LP Securities Litigation'.

Sentiment

Score: 5

Explanation: The sentiment is neutral. While the fund experienced a decrease in NAV, it is actively managed to track its benchmark, and the report provides a balanced view of market factors and risks.

Positives

• Average interest rates earned on short-term investments held by UNL, including cash, cash equivalents and Treasuries, were higher during the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023.
• The management fee paid to USCF was reduced from 0.75% per annum to 0.60% per annum effective May 1, 2024.
• For the 30-valuation days ended September 30, 2024, UNL's NAV performed within the plus or minus 10% range established as its benchmark tracking goal.
• For the nine months ended September 30, 2024, UNL's actual total return outperformed its benchmark by 2.56%.

Negatives

• UNL's NAV per share decreased by (7.69)% from $8.58 at the end of 2023 to $7.92 as of September 30, 2024.
• The fund experienced a net loss of $1,696,155 for the nine months ended September 30, 2024.
• The fund is subject to risks associated with contango and backwardation in the natural gas futures market.
• Legal proceedings involving USCF and related funds are ongoing, which could result in financial losses and reputational damage.

Risks

• The fund is subject to commodity price risk, particularly natural gas price risk.
• Geopolitical risks, including the Russia-Ukraine war and Middle East conflict, could lead to supply disruptions and increased volatility.
• The fund faces risks related to contango and backwardation in the natural gas futures market.
• Regulatory changes and position limits could impact the fund's ability to meet its investment objective.
• The fund is subject to legal proceedings, which could result in financial losses.
• Infectious disease outbreaks like COVID-19 could negatively affect UNL and the valuation and performance of UNL’s investments.
• UNL may potentially lose money by investing in government money market funds.

Future Outlook

The report discusses factors that may impact future natural gas prices, including domestic supply and demand, international demand, geopolitical events, and weather patterns. It also mentions the potential impact of the upcoming U.S. presidential election on natural gas policies.

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 production levels, storage, exports, and geopolitical events. It also compares natural gas price movements to other energy commodities and investment asset classes.

Comparison to Industry Standards

• The report does not provide specific comparisons to other similar funds or industry benchmarks.
• However, it does discuss the fund's tracking of its benchmark, which is the average of prices of 12 natural gas futures contracts.
• The report also includes a correlation matrix comparing natural gas price movements to other energy commodities and investment asset classes, which can be used to assess its performance relative to these assets.

Legal Proceedings

• USCF and USO were named as defendants in an action filed by Optimum Strategies Fund I, LP, which was dismissed with prejudice.
• USCF and USO settled with the SEC and CFTC relating to matters set forth in certain Wells Notices, resulting in civil monetary penalties.
• USCF, USO, and certain individuals are named as defendants in a putative class action, 'In re: United States Oil Fund, LP Securities Litigation', which they intend to vigorously contest.
• USCF, USO, and certain individuals are named as defendants in a derivative action, 'Mehan Action', which is stayed pending disposition of the motion(s) to dismiss in 'In re: United States Oil Fund, LP Securities Litigation'.
• USCF, USO, and certain individuals are named as defendants in derivative actions, 'In re United States Oil Fund, LP Derivative Litigation', which are stayed pending disposition of the motion(s) to dismiss in 'In re: United States Oil Fund, LP Securities Litigation'.

Related Party Transactions

• USCF receives a management fee calculated as a percentage of UNL's total net assets.
• USCF pays the fees of the Marketing Agent and BNY Mellon for administrative, custodial, and transfer agency services.
• UNL and certain Related Public Funds have entered into a licensing agreement with the NYMEX, pursuant to which they pay a licensing fee.

Stakeholder Impact

• Shareholders are impacted by the fund's performance, which is influenced by natural gas prices and market conditions.
• Authorized Participants are impacted by the creation and redemption process, as well as transaction fees.
• The fund's performance and legal proceedings could impact its reputation and ability to attract investors.

Next Steps

• UNL will continue to manage its portfolio to track the average daily percentage changes in the spot price of natural gas.
• USCF will continue to monitor market conditions, regulatory requirements, and risk mitigation measures to optimize the fund's performance.
• UNL will continue to defend itself in ongoing legal proceedings.

Key Dates

Keywords

natural gas, futures contracts, UNL, financial results, commodity pool, NAV, USCF, benchmark futures contracts, contango, backwardation