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Energy Stocks: What Are the Key Quantitative Drivers?

PART:
1 2 3 4
Part 4
Energy Stocks: What Are the Key Quantitative Drivers? PART 4 OF 4

Natural Gas: Are Gas-Heavy Stocks Catching a Winter Cold?

Natural gas–weighted stocks and natural gas

In the previous part, we looked at the fall in natural gas prices due to higher temperature forecasts. Between January 23, 2017, and January 30, 2017, natural gas futures contracts for March 2017 delivery fell 0.8%.

Natural Gas: Are Gas-Heavy Stocks Catching a Winter Cold?

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An equally weighted basket of natural gas–weighted stocks fell 1% during the same period. These stocks operate with production mixes of at least 60.0% in natural gas (UNG) (BOIL) (UGAZ) (FCG) (GASL). They’re also part of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).

Best and worst natural gas stocks

The natural gas–weighted stocks that outperformed their peers from January 23, 2017, to January 30, 2017, included the following:

  • WPX Energy (WPX) – 3.9%
  • Rice Energy (RICE) – 2.5%
  • Southwestern Energy (SWN) at -0.7%

The stocks that underperformed their peers during the period included the following:

  • Chesapeake Energy (CHK) at -3.3%
  • Antero Resources (AR) at -3.4%
  • Cabot Oil & Gas (COG) at -4.1%.

Apart from their correlation with natural gas in the short term and their earnings in the long term, the performances of these natural gas–weighted stocks could also be impacted by movements in crude oil (USO) (UCO) prices. Crude oil prices can drive the sentiment of the entire energy sector, not just crude oil stocks.

Performance of natural gas–weighted stocks and natural gas since 2016 lows

On March 3, 2016, natural gas futures touched a 17-year low of $1.64. From March 3, 2016, to January 30, 2017, natural gas (UNG) (BOIL) (UGAZ) (FCG) rose 97.1% on a closing price basis. Our basket of equally weighted upstream stocks rose 39.1% during the same period.

The smaller rise in gas-weighted stocks compared to natural gas could be attributed to the weaker position of some of these natural gas–heavy companies due to chronically low natural gas prices over the last few years. They’re also likely pricing in weaker natural gas prices in the future due to rising natural gas production despite weak prices.

Since March 3, 2016, the following natural gas–weighted stocks were among the outperformers:

  • WPX Energy – 170.4%
  • Rice Energy – 110.6%
  • Chesapeake Energy – 51.3%

The following natural gas–weighted stocks didn’t fare as well over the period:

  • Antero Resources – 3.1%
  • Cabot Oil & Gas at -3.8%
  • Gulfport Energy at -16.7 %

So, natural gas–weighted stocks underperformed natural gas in the trailing week and since its low in March 2016. We’ll have to wait and see if the trend continues, particularly if natural gas looks bearish despite the winter.

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