The Securities Exchange Commission (SEC) should not issue additional shares to the United States Natural Gas Fund (UNG), according to the Industrial Energy Consumers of America (IECA), which said the additional shares could distort and possibly raise the price of natural gas long term for manufacturers and other consumers.
"We believe that the supply and demand of the market should determine the price of commodities and are concerned about what [impact] these growing ETF [exchange-traded commodity index funds] volumes will have on prices," IECA said. "Fundamental questions are raised as to whether they help or hurt price discovery."
IECA requested a public hearing to address the potential negative impact that additional shares could have and urged the SEC "to act with caution and on behalf of the public interest given our nation's experience with excessive speculation that occurred in 2008."
IECA's statement was issued less than a week after total units outstanding in UNG surged to a record 347.4 million units as investors continued to pour money into the fund, despite the recent downturn in U.S. natural gas prices.
Any further increases in units outstanding will have to wait until the SEC allows UNG to issue more units to the investing public. The fund recently announced that it had no more units to float under its existing shelf registration, but it was awaiting SEC approval on its June 5 application to issue up to one billion additional units, which, if granted, would give it the ability to more than double its current units outstanding.
The Commodity Futures Trading Commission (CFTC) recently revealed plans to host a series of meetings through August to determine whether it should establish speculative limits on certain commodities, including natural gas. In a filing with the CFTC in early June, UNG management said that as a passively managed commodity index fund with a "neutral" investment strategy, the CFTC should free it and other exchange-traded commodity index funds from position limits and grant them "no-action" status with respect to their activities (see NGI, June 29a).
Much has been said over the last two months about the fund's rapid growth and alleged impacts on the natural gas futures market through its positions on Nymex and IntercontinentalExchange. Late last month after sitting down with John Hyland, UNG's chief investment officer, a team of analysts with Citi Investment Research & Analysis said due to the fund's rapid growth and significant size, it could be "propping up" front-month natural gas prices at the indirect expense of the back end of the natural gas 12-month strip (see NGI, June 29b).
UNG is scheduled to roll over its long August futures contracts to long September contracts from Wednesday (July 15) to Monday (July 20), in increments of 25% over each of the four trading days.
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