Will Natural Gas Take Merchant Stocks for a Ride Again This Year?
Merchant stocks and their correlation with natural gas
US power generation is dominated by natural gas since gas-fired generation has become more economical in the last few years. Consequently, merchant power companies have a significant exposure to natural gas prices (UNG) due to market-driven wholesale power prices.
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All this means that a 1.0% change in natural gas prices could result in roughly a 0.20% change in these merchant power stocks.