NEW YORK, May 13 (Reuters) - Recent concerns that growth in the United States Natural Gas Fund (UNG.P) (UNG) has been the primary driver behind the strong gas price run-up this month may be overblown, some industry analysts said.
Some analysts have estimated UNG could hold as much as 80 percent of New York Mercantile Exchange June natural gas open interest, stirring concerns that such a huge share could impact price volatility.
But some said the share was probably a lot lower.
"There's been a lot of attention paid to the growing open interest held by UNG, but it's completely disingenuous to say that it currently represents 80 percent of the futures market. That completely overstates the case," said Addison Armstrong, director of market research at Tradition Energy in Connecticut.
Armstrong noted that data from May 12 showed UNG held the June futures equivalent of about 42,000 contracts, or only about a quarter of the NYMEX June gas open interest, which includes both swaps and futures contracts.
UNG is an exchange-traded fund, or ETF, that tracks the price of natural gas futures on the New York Mercantile Exchange. It's one way for smaller players to invest in commodities like gas by buying shares in the fund without worrying about margin calls if their bet goes wrong.
The fund on Wednesday began the first of four days of rolling June positions into July, but had only minimal impact on the price spread, which widened by just 1.3 cents today.
Growth in the fund triggered talk this week about its impact on the sharp rally in gas this month despite bearish fundamentals that helped drive prices down some 75 percent in the last 10 months to 6-1/2-year lows of $3.155 per million British thermal units in late April.
But prices have since staged an impressive recovery, spiking some 30 percent this month to the $4.50 area though inventories remain near record highs and industrial demand is down sharply due to a severe recession.
"We have no doubt that the flood of money into the UNG established a floor in the NYMEX (natural gas) market - regardless of extant weak fundamentals - and is now propelling the market higher," said Stephen Schork, editor of the Schork Report, in a report this week.
UNG's share of open interest is significant and buying by that fund probably did contribute to some of the recent upside, but traders said other factors were also at work.
While total volume and open interest in natural gas futures are up sharply so far this month, chart traders point out that some of those gains would be expected in a market that blew through some key technical resistance points in the last two weeks.
They note that speculative hedge funds were caught holding a sizable net short natural gas futures position and probably fueled some of the rally as they scrambled to cover, or lock in profits, as prices moved against them.
In addition, traders said end-user buying probably also backed some of the upside as players who missed the recent lows tried to lock in prices in case the market heads even higher. (Reporting by Joe Silha; Editing by Christian Wiessner)
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