The natural gas related exchange traded fund (ETF) has been criticized for driving up the prices of this commodity unnaturally, but industry analysts are beginning to realize this is not the case.Growth within the related natural gas ETF has been scrutinized that it is the primary driver behind the strong gas price run-up this month. Joe Silha for Reuters reports that analysts believe this is a misconception, although some analysts have estimated United States Natural Gas (UNG) could hold as much as 80% of New York Mercantile Exchange June natural gas open interest. Some have said the share is actually much lower than that, though.

Such a large share could create unnecessary volatility and many are doubtful that there is such a large share of the futures market represented. 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% in the last 10 months.

Total U.S. gas consumption is projected to decline 1.9% this year, then increase slightly in 2010, says Warren R. True at Oil & Gas Journal. Overall, though, the outlook for gas consumption depends heavily on the timing and pace of economic recovery.

The bottom line here is that these commodity ETFs do what they should, and putting the blame for volatility in the markets squarely on their shoulders isn’t fair or correct.

Prices have since managed an impressive recovery, spiking some 30% this month. Analysts have also noted that the fund has drawn large call trades, an indication that investors believe its shares will rise 20% in the next five months, notes Pete Najarian at TheStreet. A call gives an investor the right, but not the obligation, to buy a security at a specified price within a specific time period.

• United States Gasoline (UNG): down 28% year-to-date

Tags: Commodity ETFs, Energy, Natural Gas, UNG