On July 3, natural gas August 2018 futures closed at a premium of ~$0.17 to August 2019 futures, and on June 26, the futures spread was at a premium of ~$0.23. Between June 26 and July 3, natural gas August futures fell 2.1%.
Futures spread and the natural gas market
The market sentiment toward natural gas’s demand-supply situation is reflected in the futures spread. The futures spread and natural gas prices tend to move in the same direction.
In the past five trading sessions, the premium has contracted, and natural gas prices have fallen ~2%. A contraction in the premium could mean the market expects the dynamic between demand and supply to tilt in favor of the latter. In the previous parts of this series, we saw how natural gas production has been surging and how natural gas inventories are rising back to their five-year average.