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Why Natural Gas Leads the Broader Markets and Crude Oil

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Natural gas and the S&P 500 Index

For the week ended June 3, 2016, natural gas July futures (UNG) (FCG) rose 10.6%. The S&P 500 Index (SPY) (QQQ) was flat. Among the SPDR ETFs, the Utilities Select Sector SPDR ETF (XLU) gained the most, rising 2.6% between May 27 and June 3, 2016. The utility sector rose since the US payroll number missed the forecasts. This could delay the next rate hike. Lower interest rates make utility stocks attractive.

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Natural gas and crude oil

Crude oil futures (USO) fell 1.1% on June 3, 2016, on a closing basis. This came as a higher rig count raised concerns about the current supply glut extending for longer. Last week, crude oil fell 1.4%.

Last week, July natural gas futures contracts (GASL) (FCG) rose 10.6%. The rise in natural gas prices came before June 2, 2016, in anticipation of the lower level of inventory addition. On June 2, the EIA (U.S. Energy Information Administration) announced an addition of 82 Bcf (billion cubic feet) to natural gas inventory for the week ended May 27. This was lower than consensus estimates.

For natural gas, July contracts rose 1% after the EIA’s natural gas inventory announcement on June 2. The rise in natural gas prices could be a key catalyst for natural gas–weighted stocks such as Gulfport Energy (GPOR), Comstock Resources (CRK), and Ultra Petroleum (UPL).

Next, let’s see which upstream stocks have the highest implied volatility.

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