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Did Natural-Gas-Weighted Stocks Underperform Natural Gas?

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Natural-gas-weighted stocks and natural gas

Between May 16 and 23, 2016, an equally weighted basket of natural-gas-weighted stocks that operate with a production mix of at least 60% in natural gas (UNG) (BOIL) (UGAZ) (FCG) and that are part of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) fell 2.6% compared to a a 0.14% fall in natural gas during the same period. The returns in natural-gas-weighted stocks are also adjusted for dividends.

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During the same period, Memorial Resource Development (MRD) returned 10.2%. Range Resources (RRC) and Southwestern Energy (SWN) rose 9.4% and 4.6%, respectively. However, these three stocks outperformed their peers. EXCO Resources (XCO), Rex Energy (REXX), and Comstock Resources (CRK) lost 23.8%, 15.7%, and 12.7%, respectively, over the same period. EXCO Resources, Rex Energy, and Comstock Resources fell the most compared to their peers. Apart from the impact of natural gas that we discussed in the previous part, the relative performance of these natural-gas-weighted stocks could be related to their earnings as well as movements in crude oil (USO) prices. Read How’s Natural Gas Correlated to Crude Oil? to learn more about the correlation of natural gas with crude oil.

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 based on the closing price. Between March 3 and May 23, 2016, natural gas gained 25.4%. The basket of these equally weighted upstream stocks gained 22.5% over this period. Rice Energy (RICE), WPX Energy (WPX), and Contango Oil & Gas (MCF) returned 86.5%, 89.4%, and 72.2%, respectively, during this time. During the same period, Exco Resources, Rex Energy (REXX), and Chesapeake Energy (CHK) lost 56.6%, 51.6%, and 14.1%, respectively. These three stocks underperformed their peers between March 3 and May 23, 2016.

So, natural-gas-weighted stocks have underperformed natural gas in the last six trading sessions and since natural gas’s 2016 lows.

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