10-Q: UNL Reports Q3 2025 Performance Amid Volatile Gas Market

The United States 12 Month Natural Gas Fund, LP reported a net loss for Q3 2025, with NAV declining amidst a volatile natural gas market.

Summary

• Total Partners Capital significantly decreased from $18,672,121 at December 31, 2024, to $10,445,121 at September 30, 2025.
• Net Asset Value (NAV) per share declined from $8.12 at December 31, 2024, to $7.74 at September 30, 2025.
• The fund reported a net income of $453,047 for the nine months ended September 30, 2025, a substantial improvement from a net loss of $(1,696,155) in the prior year period.
• However, the third quarter (three months ended September 30, 2025) saw a net loss of $(1,348,433), which was worse than the $(596,136) loss in Q3 2024.
• The fund's actual total return for the nine months ended September 30, 2025, was (4.68)%, outperforming its benchmark's expected total return of (6.40)% by 1.72%.
• The natural gas futures market experienced volatility, with the Benchmark Futures Contracts increasing approximately 4.17% over the nine-month period.
• The fund successfully tracked its benchmark, with an average daily difference of 0.007% (0.7 basis points) for the 30-valuation days ended September 30, 2025, well within its +/10% target.

Sentiment

Score: 6

Explanation: The fund showed a positive shift to net income for the nine-month period and outperformed its benchmark, indicating effective management of its investment strategy. However, the substantial decrease in total partners' capital and a net loss in the most recent quarter, coupled with a volatile natural gas market, present mixed signals.

Positives

• Net income for the nine months ended September 30, 2025, was $453,047, a substantial improvement from a net loss of $(1,696,155) in the same period of 2024.
• The fund's actual total return of (4.68)% for the nine months ended September 30, 2025, outperformed its benchmark's expected total return of (6.40)% by 1.72%.
• Successfully tracked its benchmark, with an average daily difference of 0.007% (0.7 basis points) for the 30-valuation days ended September 30, 2025, well within the +/10% target.
• The General Partner management fee was reduced from 0.75% to 0.60% per annum effective May 1, 2024.
• Total expenses (excluding management fees) decreased for both the three and nine months ended September 30, 2025, compared to 2024.
• Total commissions accrued to brokers decreased due to a lower number of Futures Contracts being held and traded.
• The natural gas market saw a 4.17% increase in Benchmark Futures Contracts prices over the nine months ended September 30, 2025.

Negatives

• Total Partners Capital significantly decreased from $18,672,121 at December 31, 2024, to $10,445,121 at September 30, 2025.
• Net Asset Value (NAV) per share declined from $8.12 at December 31, 2024, to $7.74 at September 30, 2025.
• The fund experienced a net loss of $(1,348,433) for the three months ended September 30, 2025, which is worse than the $(596,136) loss in the same period of 2024.
• Limited Partner shares outstanding decreased from 2,300,000 to 1,350,000, indicating significant redemptions.
• Average interest rates earned on short-term investments were lower in the nine months ended September 30, 2025 (4.21%), compared to the same period in 2024 (5.14%).
• Unrealized loss on open commodity futures contracts was $(814,334) at September 30, 2025, compared to a gain of $1,115,220 at December 31, 2024.

Risks

• Market risk arising from changes in the market value of commodity futures contracts, including exposure to loss in excess of variation margin and the possibility of illiquid markets.
• Credit risk from the potential failure of counterparties (clearinghouses, FCMs, or OTC counterparties) to meet their obligations, which could lead to substantial loss of assets in case of insolvency.
• Impact of contango and backwardation, natural market forces that can cause the fund's total return to differ from a hypothetical direct investment in natural gas.
• Regulatory risks from evolving commodity interest trading regulations, including accountability levels, position limits (e.g., CFTC's Position Limits Rule Part 150), and price fluctuation limits, which could inhibit investment ability or cause tracking error.
• Operational risk, particularly with highly customized swap transactions, which may increase liquidity risk and potentially lead to a suspension of redemptions.
• Geopolitical and environmental risks, such as natural disasters, public health disruptions (e.g., COVID-19), international armed conflicts (e.g., Russia-Ukraine war, Middle East conflicts), sanctions, tariffs, trade wars, global/local recessions, and acts of terrorism, which can negatively impact commodity prices and asset values.
• Interest rate risk, where fixed income securities and other investments (Treasuries) fluctuate in value due to interest rate changes, potentially leading to declines in value or lower reinvestment rates.
• Inflation risk, as a general increase in the overall price level of goods and services can erode the value of the fund's cash and Treasury investments.
• Money market fund risk, where investments in government money market funds are not guaranteed to maintain a stable $1.00 per share NAV and are not FDIC insured, exposing the fund to potential losses.
• Liquidity risk, as investments in Natural Gas Interests may be subject to periods of illiquidity due to market conditions or daily limits on commodity exchanges, hindering prompt liquidation of positions.
• Leverage risk, as the fund could become leveraged if it holds assets with a value less than zero, despite not intending to borrow money.
• Termination risk, where the fund may terminate at any time due to unforeseen circumstances, leading to liquidation and potential loss of an investor's investment.
• Uncertainty regarding the impact of changes in U.S. federal income tax laws, which could have a negative effect on the fund or its investors.

Future Outlook

Management anticipates that interest rates may continue to stagnate from historical lows in the near term, potentially allowing fees and expenses to be lower than interest earned, which could lead to the fund outperforming its benchmark. The increasing demand for LNG, new export facilities, and potential new demand from AI data centers are expected to lift natural gas prices. A potential resolution to the Russia-Ukraine war could bring more Russian natural gas supply to Europe, easing international price pressure. While domestic supply and demand will remain dominant, international demand and extraordinary international events are expected to increasingly influence price volatility and direction. Management also believes that while natural gas has historically not shown a strong correlation with equities or bonds, this relationship could change in the future.

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."
• "USCF anticipates that interest rates may continue to stagnate over the near term from historical lows. It is anticipated that fees and expenses paid by UNL may be lower than interest earned by UNL. As such, USCF anticipates that UNL could possibly outperform its benchmark so long as interest earned is greater than the fees and expenses paid by UNL."
• "USCF believes that natural gas has historically not demonstrated a strong correlation with equities or bonds over long periods of time. However, USCF also believes that in the future it is possible that natural gas could have long-term correlation results that indicate prices of natural gas more closely track the movements of equities or bonds."

Industry Context

The natural gas market experienced volatility during the nine months ended September 30, 2025, with Benchmark Futures Contracts prices increasing by approximately 4.17%. The number of rigs dedicated to natural gas production rose from 103 to 117, while U.S. natural gas inventories remained stable year-over-year at 3.561 billion cubic feet. Increasing domestic demand and U.S. exports of natural gas, particularly LNG to Europe, are significant trends, with new export facilities under construction expected to further boost prices. Emerging demand from AI data centers is also identified as a potential future price driver. Geopolitical events, such as the Russia-Ukraine war, have dramatically altered European natural gas supply-demand dynamics, leading to reduced Russian supply and Europe seeking alternative sources. A potential resolution to this conflict could ease international price pressure. While domestic supply and demand remain primary influences, international demand and extraordinary global events are increasingly impacting price volatility and direction.

Comparison to Industry Standards

• The fund's investment objective is to track the average daily percentage changes of the spot price of natural gas, as measured by the daily percentage changes in the average of 12 NYMEX natural gas futures contracts.
• For the 30-valuation days ended September 30, 2025, the fund's average daily change in per share NAV of 0.031% was within the target range of 90% to 110% of the benchmark's average daily change of 0.024%, demonstrating effective tracking.
• For the nine months ended September 30, 2025, the fund's actual total return of (4.68)% outperformed the benchmark's expected total return of (6.40)% by 1.72%, primarily due to interest and dividend income exceeding expenses.
• The fund's performance is consistently evaluated against its stated benchmark, rather than specific comparable companies or projects, aligning with its structure as a commodity pool designed for indirect natural gas exposure.

Corporate Governance

Legal Proceedings

• UNL is not currently a party to any material legal proceedings. However, its general partner, United States Commodity Funds LLC (USCF), and a related fund, United States Oil Fund, LP (USO), are involved in several legal and regulatory matters.
• USCF and USO settled SEC and CFTC investigations on November 8, 2021, resulting in cease-and-desist orders and civil monetary penalties totaling $2,500,000 for alleged violations related to disclosures during 2020 oil market volatility.
• A class action, 'In re: United States Oil Fund, LP Securities Litigation,' against USCF, USO, and individuals, had its complaint dismissed without prejudice on September 29, 2025, with leave for the plaintiff to amend by November 26, 2025.
• Other related legal actions, including the 'Optimum Strategies Action' (dismissed March 15, 2023), 'Wang Class Action' (voluntarily dismissed August 4, 2020), 'Mehan Action' (stayed), and 'In re United States Oil Fund, LP Derivative Litigation' (stayed), involve USCF and/or USO.

Related Party Transactions

• UNL pays USCF a management fee equal to 0.60% per annum of average daily total net assets (reduced from 0.75% effective May 1, 2024).
• USCF previously paid certain expenses on a discretionary basis (expense waiver) where expenses exceeded 0.15% of NAV, but this waiver was terminated on April 30, 2024.
• UNL shares the fees and expenses of independent directors and officers liability insurance on a pro rata basis with its Related Public Funds.
• UNL and certain Related Public Funds pay a licensing fee to the NYMEX equal to 0.015% on all net assets.
• USCF pays the fees of the Marketing Agent (ALPS Distributors, Inc.) and The Bank of New York Mellon (for custodial, administrative, accounting, and transfer agency services).

Stakeholder Impact

• Shareholders experienced a decline in NAV per share and total partners' capital, but the fund outperformed its benchmark for the nine-month period, offering mixed returns.
• The General Partner (USCF) continues to earn management fees and bears certain operational costs, while also managing ongoing legal proceedings related to a related fund (USO).
• Authorized Participants continue to facilitate share creation and redemption, earning transaction fees.
• Brokers and Futures Commission Merchants (FCMs) earn commissions, which decreased due to lower trading volume.
• Regulatory bodies maintain oversight, with USCF having previously settled investigations with the SEC and CFTC, highlighting ongoing compliance requirements.

Next Steps

• The plaintiff in the 'In re: United States Oil Fund, LP Securities Litigation' has leave to move to amend the complaint by November 26, 2025.
• USCF and other defendants intend to vigorously contest claims in ongoing legal proceedings.
• The fund will continue to manage its portfolio to track the Benchmark Futures Contracts.
• The fund will continue to monitor market conditions, regulatory requirements, and risk mitigation measures.

Key Dates

Recommendation

While the fund demonstrated improved net income for the nine-month period and outperformance against its benchmark, the substantial decline in total partners' capital and NAV per share, coupled with a net loss in the most recent quarter, indicates underlying challenges. The natural gas market remains volatile, and while the fund's tracking ability is good, the overall trend in assets is negative. Investors should hold to monitor if the positive nine-month income trend can be sustained and if capital outflows stabilize, especially given the ongoing legal matters for the general partner, even if not directly against UNL.

Keywords

Natural Gas Futures, Commodity Pool, UNL, NYMEX, Energy ETF, Commodity Trading, Futures Contracts, Contango, Backwardation, SEC Filing, 10-Q, Investment Fund, Natural Gas Prices