Natural Gas Forward Curve Impacted UNG and BOIL


May. 22 2019, Published 8:02 a.m. ET

Forward curve

As of May 21, the natural gas futures contracts for delivery between June and August were priced in ascending order—a negative development for ETFs that follow natural gas futures including the ProShares Ultra Bloomberg Natural Gas ETF (BOIL) and the United States Natural Gas ETF (UNG).

If the active futures contract expiry is within two weeks, the United States Natural Gas ETF (UNG) shifts its holdings in active natural gas futures to the following month’s futures contract. As a result, the fund could incur losses if next month’s futures are priced at higher levels compared to the expiring futures when it shifts its holdings. BOIL is also impacted by the upward sloping forward curve. On May 14–21, the natural gas June futures fell 1.7%. UNG fell 1.3% and BOIL fell 2.8%.

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Futures spread

On May 21, the natural gas futures for June closed at a premium of ~$0.015 to the June 2020 futures. On May 14, the futures spread was at a premium of $0.05.

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 trailing week, the futures spread’s premium contracted. Natural gas prices fell by close to two percentage points. The contraction in the spread indicates that the bullish sentiments have fallen for natural gas. The contraction could make energy investors’ returns on UNG and BOIL worse.


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