I’m trying to understand concepts of contango and backwardation and looking at natural gas in particular.
Below is the latest graph I could find:
https://www.naturalgasintel.com/wp-content/uploads/2022/04/Market-Image.png
In the weeks since, the near months are relatively unchanged with the March 23 spread narrowing by ~$1 and the basic shape of mild contango for the rest of 22 with a marked drop in summer 23 holding:
https://www.cmegroup.com/markets/energy/natural-gas/natural-gas.settlements.html
We are well below 5 year average stores and in a state of scarcity we might expect an increase in volatility but can the forward curve help predict directionality?
Can we say whether the shape of curve itself is bullish or bearish for the forward month? Or alternatively as some literature has argued maybe the NG market is pretty efficient and futures curves can’t really predict future NG spot prices any better than a random walk model?
Lastly, convexity is typical for summer months but currently we don’t see the expected seasonality until summer of next year. How to interpret this (ie evidence of a supply shock)?
Thank you very much.
