Natural Gas’s Forward Curve: Key for Energy Investors



Forward curve

As of May 7, 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).

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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 April 30–May 6, the natural gas June futures fell 1.5%. UNG and BOIL fell 1.5% and 3.1%.

Futures spread

On May 7, the natural gas futures for June 2019  closed at a discount of ~$0.02 to the June 2020 futures. On April 30, the futures spread was at a premium of $0.01.

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 shifted from a premium to a discount, while natural gas prices fell by more than one percentage point. The shift in the spread indicates that the sentiments have turned bearish for natural gas. The shift could worsen energy investors’ returns on UNG and BOIL.


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