I d be v careful on the term structure component. It effectively gets you short NG all the way through summer which is unreflected. NG spreads need to incentivize storage hence they must be negative / flat. However, you can easily put the spread into context via available stock data and termstructure to create a more insightful (relative) value: You want to know if, given I know I gotta store, the mkt expensive or cheap. Another example of the same intricacy is the rbob / gasoline spec change: Summer gasoline is just harder to produce because it needs to not blow up your car at high temperatures.
Think this might be the paper I was thinking of: https://www.sciencedirect.com/science/article/abs/pii/S0378426610001354
Awesome, thanks!. There's a paywall, but luckily the paper is also in SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1127213
I d be v careful on the term structure component. It effectively gets you short NG all the way through summer which is unreflected. NG spreads need to incentivize storage hence they must be negative / flat. However, you can easily put the spread into context via available stock data and termstructure to create a more insightful (relative) value: You want to know if, given I know I gotta store, the mkt expensive or cheap. Another example of the same intricacy is the rbob / gasoline spec change: Summer gasoline is just harder to produce because it needs to not blow up your car at high temperatures.