10-Q: United States Natural Gas Fund Reports Mixed Results Amidst Market Volatility in Q3 2024

The United States Natural Gas Fund (UNG) experienced a decrease in net asset value per share during the third quarter of 2024, amidst volatile natural gas markets.

Summary

• The United States Natural Gas Fund (UNG) reported its financial results for the quarter ended September 30, 2024.
• UNG's net asset value per share decreased from $20.36 at the end of 2023 to $16.43 as of September 30, 2024.
• The fund's total assets decreased from $987.76 million at the end of 2023 to $932.63 million as of September 30, 2024.
• UNG's net income for the nine months ended September 30, 2024, was $11.41 million, compared to a net loss of $417.54 million for the same period in 2023.
• The fund's investment objective is to track the daily changes in the price of natural gas delivered at the Henry Hub, Louisiana, as measured by a benchmark futures contract.
• UNG invests primarily in natural gas futures contracts and, to a lesser extent, in other natural gas-related investments.
• The natural gas market experienced significant volatility during the reporting period, with prices fluctuating between $1.614 and $3.313 per MMBtu.
• The fund's management fee is 0.60% per annum of average daily total net assets of $1,000,000,000 or less and 0.50% per annum of average daily total net assets that are greater than $1,000,000,000.

Sentiment

Score: 4

Explanation: The document presents mixed results with a decrease in NAV and total assets, but an improvement in net income. The language is neutral, focusing on factual reporting, but the overall performance suggests a slightly negative sentiment.

Positives

• UNG's net income for the nine months ended September 30, 2024, was $11.41 million, a significant improvement compared to a net loss of $417.54 million for the same period in 2023.
• The fund's average daily change in NAV closely tracked the average daily change in the Benchmark Futures Contract, staying within the target range of 90% to 110%.

Negatives

• UNG's net asset value per share decreased from $20.36 at the end of 2023 to $16.43 as of September 30, 2024.
• The fund's total assets decreased from $987.76 million at the end of 2023 to $932.63 million as of September 30, 2024.

Risks

• The natural gas market is subject to significant volatility, which can impact the fund's performance.
• Contango and backwardation in the futures market can affect the total return on an investment in UNG shares.
• UNG is exposed to counterparty risk when entering into OTC swap contracts.
• The fund's ability to track its benchmark may be affected by trading costs, market conditions, and regulatory limitations.
• Geopolitical risks, including the Russia-Ukraine war and Middle East conflict, could lead to further supply disruptions and volatility.

Future Outlook

The document includes forward-looking statements regarding the plans and objectives of management for future operations, but cautions that actual results may differ materially due to various factors, including market volatility and geopolitical risks. The fund anticipates that interest rates may continue to stagnate over the near future and that fees and expenses paid by UNG may continue to be lower than interest earned by UNG.

Management Comments

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

Industry Context

This report reflects the performance of a natural gas commodity pool during a period of significant market volatility, influenced by factors such as the Russia-Ukraine war, Middle East conflict, and global economic conditions. The fund's performance is directly tied to the price movements of natural gas futures contracts, making it sensitive to supply and demand dynamics, geopolitical events, and seasonal patterns.

Comparison to Industry Standards

• The fund's tracking of its benchmark, the daily changes in the price of natural gas delivered at the Henry Hub, is a key performance indicator for commodity ETFs.
• The report details the fund's performance relative to its benchmark, noting that the average daily change in UNG's per share NAV was within the target range of 90% to 110% of the average daily change in the price of the Benchmark Futures Contract.
• The fund's expense ratio, including management fees and brokerage commissions, is a relevant metric for comparison with similar commodity ETFs.
• The report provides a correlation matrix comparing the monthly movements of natural gas prices versus the monthly movements of the prices of several other energy commodities, such as crude oil, diesel-heating oil, and unleaded gasoline, as well as several major non-commodity investment asset classes, such as large cap U.S. equities, U.S. government bonds and global equities. This is a standard practice for commodity funds to show how their performance relates to other asset classes.

Legal Proceedings

• UNG may be involved in legal proceedings arising from the ordinary course of its business.
• USCF and USO were named as defendants in an action filed by Optimum Strategies Fund I, LP, which was dismissed by the court.
• USCF and USO reached a settlement with the SEC and CFTC regarding certain matters.
• USCF, USO, and certain individuals are 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 defendants in a derivative action, Mehan Action, which is stayed pending the outcome of the class action.
• USCF, USO, and certain individuals are defendants in two derivative actions, In re United States Oil Fund, LP Derivative Litigation, which are stayed pending the outcome of the class action.

Related Party Transactions

• USCF is the general partner of UNG and receives a management fee based on the fund's net assets.
• USCF pays the fees of the Marketing Agent and BNY Mellon for their services.
• UNG pays a licensing fee to the NYMEX under a licensing agreement.
• UNG pays a portion of the fees and expenses of the independent directors of USCF.

Stakeholder Impact

• Shareholders experienced a decrease in net asset value per share during the quarter.
• Authorized Participants can create and redeem shares in blocks of 100,000.
• The fund's performance is directly tied to the price movements of natural gas futures contracts, impacting investors who seek exposure to this commodity.

Next Steps

• UNG will continue to monitor market conditions and adjust its investment strategy as needed to meet its investment objective.
• The fund will continue to comply with regulatory requirements and maintain its disclosure controls and procedures.

Key Dates

Keywords

natural gas, futures contracts, commodity pool, UNG, net asset value, Henry Hub, contango, backwardation, OTC swaps, market volatility