Natural gas curve flattens: contango ends, UNG becomes a real ETF

Natural gas storage inventories were released today, showing a slight injection of 3Bcf, bringing the amount in storage to 3.843Tcf. This is just0.3% higher than last year. What is more important is the derivative (or slope) of the curve is near zero. In other words, the injections are flattening.

This is critical, because any slightly larger injection can create rumors of overflowing of the storage capacities, causing the prices to drop further, and any draw down, could make prices spike

These effects are mainly psychological. UNG reacted today with a slight drop of about 2% by 10:50AM

Contango no more

All the more important is that there is no more significant contango on futures contracts, so UNG will not suffer from its usual degradation. As of 10:55AM:

There is a 4.6% between December 2010 and Jan 2011 contracts, but UNG has already rolled over this month (see rollover dates). between Jan and Feb the difference is almost nil, and between February and March there is backwardation of 0.5%.

UNG has become a real ETF, for the time being. Stay tuned.