Speaking of these ETFs, UGAZ continues its rollover process into January 2018 contracts, which closed at $3.30/MMBTU, a modest 10 cent contango. Through Thursday, UGAZ holds 60% of its funds in January 2018 contracts and 40% in December 2017 contracts. The fund will likely conclude the rollover on Monday. UNG holds only December 2017 contracts and will not begin its rollover for another week or so. Since bottoming at $2.85/MMBTU on October 18, the front month contract has rallied an impressive 12.2%. Even with the rally, however, natural gas is still undervalued according to my Fair Price Model, trading at a 7.4% undervaluation to a $3.47/MMBTU Fair Price based on current inventories alone (or a 4.9% undervaluation using January 2018 pricing). And thanks to a large late-winter backwardation in futures contracts and expectations that the storage deficit will continue to build, the commodity is undervalued by an average of 16% based on the next 8 months of projections. However, with natural gas approaching overbought technical territory and temperatures expected to at least temporarily moderate next week, it would not be surprising to see the commodity pull back near-term, though the underlying bullish fundamentals will remain intact.
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