UNG trims NYMEX futures positions during roll
Posted: 06/19/2009
The US Natural Gas Fund finished its four-day roll into the August NYMEX
gas futures contract on Wednesday, trimming its NYMEX futures positions
in half, a Switzerland-based analyst said.
"This is an odd pattern and we are free to speculate whether this is the
result of pro-active governance from the managers of the UNG or the
result of a [Commodities Futures Trading Commission/NYMEX] intervention,"
Olivier Jakob said.
Gas market participants and regulators continue to watch closely as UNG
- which is an exchange-traded fund structured to track the
prompt-month gas futures contract - continues to grow, adding long
positions in the natural gas markets. Most recently the fund doubled its
holdings in the IntercontinentalExchange's Henry Hub natural gas swap
contract. The fund now holds $4 billion worth of gas futures and swaps.
Before UNG's roll - which began on June 12 and ended June 17
- the fund held about 25% of the July NYMEX gas futures contract as
well as about 33% of the NYMEX Henry Hub swaps, and an unknown percentage
of the Henry Hub lookalike swap on the IntercontinentalExchange. Unlike
many funds, UNG is transparent in the number of positions it holds in
each market and posts its roll dates and the number it is buying and
selling on its website.
However, the large fund's percentages of the market had caused Jakob to
warn that the large amount of positions could cause a price disruption in
the NYMEX July/August spread during the roll.
Over the course of the four-day roll, the July/August spread tightened
only a few cents on settlement. On Friday, the first day of the roll, the
spread remained flat at 21.4 cents, with both the July and August NYMEX
contracts losing 7.6 cents.
On Monday, the spread tightened to 20 cents, and the July contract gained
20 cents, while on Tuesday, the spread tightened again to 18.3 cents, and
the July contract fell 5.3 cents.
On Wednesday - the last day of the roll - the spread
tightened even further to 17.1 cents and the July contract gained 12.4
cents.
In total, over the four-day roll, the July/August spread shrank 4.3 cents
and the prompt-month contract gained 32 cents. On Thursday, the contract
lost 16 cents and the spread widened to 18.5 cents.
But traders and analysts say the change in the spread on settlement
doesn't tell the whole story.
Pax Saunders, analyst at Gelber & Associates, said that intraday the
spread widened during the roll, although he noted it was not a
significant amount.
Tom Saal, vice president of energy trading at Hencorp, said the UNG roll
could have helped push the gas market higher during the four-day roll.
"Don't underestimate implications of UNG fund," he said. "They may be
helping push it up."
Most funds roll their position mid-month into the next month, so UNG was
not the only fund rolling, he said, noting that while the market was
moving upward, the funds' rolls could have exaggerated that move,
especially since the market fell Thursday after the roll was complete.
But, it's hard to tell exactly what happened since the market on Thursday
also saw a larger-than-expected build to underground storage stocks, and
market participants were already expecting the build to be far above the
year-ago and five-year average builds.
Jakob said the heat on the fund is increasing and, given that asset
managers will need to report their holding of the UNG at the end of the
month for the quarterly Securities and Exchange Commission filings, he
would not exclude a cutback in positions as some might not want to have
all their UNG assets go on the record.
Posted: 06/19/2009
The US Natural Gas Fund finished its four-day roll into the August NYMEX
gas futures contract on Wednesday, trimming its NYMEX futures positions
in half, a Switzerland-based analyst said.
"This is an odd pattern and we are free to speculate whether this is the
result of pro-active governance from the managers of the UNG or the
result of a [Commodities Futures Trading Commission/NYMEX] intervention,"
Olivier Jakob said.
Gas market participants and regulators continue to watch closely as UNG
- which is an exchange-traded fund structured to track the
prompt-month gas futures contract - continues to grow, adding long
positions in the natural gas markets. Most recently the fund doubled its
holdings in the IntercontinentalExchange's Henry Hub natural gas swap
contract. The fund now holds $4 billion worth of gas futures and swaps.
Before UNG's roll - which began on June 12 and ended June 17
- the fund held about 25% of the July NYMEX gas futures contract as
well as about 33% of the NYMEX Henry Hub swaps, and an unknown percentage
of the Henry Hub lookalike swap on the IntercontinentalExchange. Unlike
many funds, UNG is transparent in the number of positions it holds in
each market and posts its roll dates and the number it is buying and
selling on its website.
However, the large fund's percentages of the market had caused Jakob to
warn that the large amount of positions could cause a price disruption in
the NYMEX July/August spread during the roll.
Over the course of the four-day roll, the July/August spread tightened
only a few cents on settlement. On Friday, the first day of the roll, the
spread remained flat at 21.4 cents, with both the July and August NYMEX
contracts losing 7.6 cents.
On Monday, the spread tightened to 20 cents, and the July contract gained
20 cents, while on Tuesday, the spread tightened again to 18.3 cents, and
the July contract fell 5.3 cents.
On Wednesday - the last day of the roll - the spread
tightened even further to 17.1 cents and the July contract gained 12.4
cents.
In total, over the four-day roll, the July/August spread shrank 4.3 cents
and the prompt-month contract gained 32 cents. On Thursday, the contract
lost 16 cents and the spread widened to 18.5 cents.
But traders and analysts say the change in the spread on settlement
doesn't tell the whole story.
Pax Saunders, analyst at Gelber & Associates, said that intraday the
spread widened during the roll, although he noted it was not a
significant amount.
Tom Saal, vice president of energy trading at Hencorp, said the UNG roll
could have helped push the gas market higher during the four-day roll.
"Don't underestimate implications of UNG fund," he said. "They may be
helping push it up."
Most funds roll their position mid-month into the next month, so UNG was
not the only fund rolling, he said, noting that while the market was
moving upward, the funds' rolls could have exaggerated that move,
especially since the market fell Thursday after the roll was complete.
But, it's hard to tell exactly what happened since the market on Thursday
also saw a larger-than-expected build to underground storage stocks, and
market participants were already expecting the build to be far above the
year-ago and five-year average builds.
Jakob said the heat on the fund is increasing and, given that asset
managers will need to report their holding of the UNG at the end of the
month for the quarterly Securities and Exchange Commission filings, he
would not exclude a cutback in positions as some might not want to have
all their UNG assets go on the record.
