As of June 4, the natural gas futures contracts for delivery between July 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, 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 28–June 4, the natural gas July futures fell 6.5%. UNG fell 6.2%, while BOIL fell 12.3%.
On June 4, the natural gas futures for July closed at a discount of ~$0.13 to the July 2020 futures. On May 28, the futures spread was at a small discount of $0.013.
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 discount expanded. Natural gas prices fell by more than six percentage points. The expansion in the spread indicates that the bearish sentiments have risen for natural gas. The expansion could make energy investors’ returns on UNG and BOIL worse.