Exchange-traded fund ProShares Ultra Bloomberg Natural Gas (BOIL - Get Rating) has witnessed significantly high volume lately. The fund, co-managed by ProFund Advisors LLC and ProShare Advisors LLC, currently has a trading volume of 129.89 million, while its average volume is 63.89 million.

BOIL takes long positions and uses derivatives to invest in the natural gas sector. The war between Ukraine and Russia caused chaos in the energy markets last year. Fears of a shortage of natural gas during peak winters in Europe had driven electricity prices to record highs as Russia slashed its gas supplies. Later, Western sanctions further restricted Russian energy exports.

In addition to Europe managing to avoid an energy crisis due to a warmer-than-expected winter, it had already built a stockpile of natural gas from alternative sources. Moreover, natural gas prices have fallen more than 50% year-to-date due to increased output and a milder-than-expected winter in the United States, which diminished the demand for heating. The U.S. natural gas prices had dropped to a 30-month low falling below $2 per million British thermal units (mmBtu).

The natural gas in storage in the U.S. currently is 21% higher than average. Natural gas May future prices are hovering just above $2 per mmBtu.

The U.S. Energy Information Administration reported that domestic natural gas supplies fell by 23 billion cubic feet for the week ended March 31, 2023. Total working gas stocks in storage for the week were up 443 billion cubic feet from the year-ago period to 1,830 trillion cubic feet and 298 billion cubic feet over the five-year average.

Although major gas producers have slashed output, the natural gas output is expected to rise due to oil operations from the shale fields. Jacques Rousseau, managing director at ClearView Energy Partners LLC, said, “About a third of U.S. gas production is associated gas – produced from oil wells. This production is unlikely to decline given current oil prices.”

The U.S. government expects U.S. gas production to reach 100.67 billion cubic feet per day (bcfd) this year, up from last year’s record of 98.09 bcfd. According to Baker Hughes Co. data, despite low gas prices, U.S. drillers have 160 rigs seeking gas, up 16% from the year-ago period.

This year, the projected U.S. gas usage, including exports, is expected to fall to 107.3 bcfd from last year’s record 107.4 bcfd. This expected drop in use is despite an expected 14% increase in U.S. liquefied natural gas (LNG) exports. The exports will not be enough to offset the usage drop.

BOIL has declined 83% in price year-to-date and 95.3% over the past year to close the last trading session at $3.03. As of April 6, 2023, the fund’s NAV was $3.01.

Size and Diversification

With around $1.12 billion in AUM, BOIL seeks to track the performance of the Bloomberg Natural Gas Subindex. Its expense ratio of 1.33% compares to the category average of 1.15%.

BOIL’s top holding is Natural Gas FUTR MAY23, which has a 173.83% weighting in the fund, followed by Net Other Assets/Cash at 100%, and Bloomberg Natural Gas Subindex Swap – CITI at 12.75%.

Fund Flows

BOIL’s flows came in at $587.84 million over the past month and $2.33 billion over the past six months. Over the past year, the fund has seen inflows of $2.41 billion.

POWR Ratings Reflect Bleak Prospects

BOIL has an overall D rating, equating to Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

BOIL is trading 97.8% below its 52-week high of $140.50, justifying its F grade for Buy and Hold. It has an F grade for Trade, in sync with its weak recent price performance.

Also, it has a D grade for Peer, consistent with its underperformance compared to its peers.

BOIL is ranked #6 out of 18 funds in the D-rated Leveraged Commodities ETFs industry. To see all POWR Ratings for BOIL, click here.

Bottom Line

Interest from investors has led to a significant spike in the volumes of BOIL. However, natural gas prices are expected to remain under pressure as output keeps rising amid falling consumption and a healthy surplus of gas in storage.

Therefore, it could be wise to avoid the fund now.

ETFs to Consider Instead of ProShares Ultra Bloomberg Natural Gas (BOIL)

The odds of BOIL outperforming in the weeks and months ahead are significantly compromised. However, there are many category peers with impressive POWR Ratings. So, consider these three A (Strong Buy) or B (Buy) ETFs from the Leveraged Commodities ETFs category instead:

ProShares Ultra Gold (UGL - Get Rating)

DB Gold Double Long ETN (DGP - Get Rating)

ProShares Ultra Silver (AGQ - Get Rating)

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BOIL shares were trading at $3.50 per share on Monday afternoon, up $0.47 (+15.51%). Year-to-date, BOIL has declined -80.31%, versus a 7.33% rise in the benchmark S&P 500 index during the same period.

About the Author: Dipanjan Banchur

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More...

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