Analyzing the Natural Gas Futures Spread
On September 6, 2017, natural gas (UNG) October 2018 futures settled at a discount of $0.06 to October 2017 futures. On August 30, 2017, the discount between the two futures contract was at $0.03. Between these two dates, natural gas active futures rose 2.1%.
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Futures spread at a discount
When the discount between the two futures contracts increases, like it did in the trailing week, natural gas prices usually gain. For example, the discount was at $0.5 on May 12, 2017. On the same day, natural gas active futures settled at their 2017 high.
Futures spread at a premium
When the futures spread shifts to a premium or when the premium expands, natural gas prices usually fall. For example, the premium rose to $0.84 on March 3, 2016. On the same day, natural gas active futures settled at their 17-year low.
In the past four trading sessions, the discount has expanded and natural gas prices gained. Moves in the futures spread could point to changes in the supply-demand dynamics and drive prices.
The natural gas futures spread and the forward curve could be important for upstream and midstream companies. They could impact US natural gas producers’ (XOP) (IEO) (DRIP) hedging decisions. Midstream companies’ (AMLP) natural gas storage and transportation operations could be impacted.
For more update on upstream stocks, visit Market Realist’s Energy and Power page.