On September 2, 2016, natural gas futures (UNG) (BOIL) (FCG) contracts for October delivery closed at $2.79 per MMBtu (million British thermal units)—at par to its previous closing price. It’s ~7% below its highest level for 2016 of $2.99 per MMBtu on July 1.
The current downturn in natural gas prices could be attributed to the supply glut issue.
What’s the correlation?
In this part of the series, we’ll look at the correlation of upstream companies that operate with a production mix of at least 60% in natural gas (UNG) (BOIL) (UGAZ) (GASX) (GASL) (FCG) with natural gas prices. These upstream companies are part of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).
The following upstream companies had the greatest correlation to natural gas futures between August 2 and September 2, 2016:
- Southwestern Energy (SWN) – 62.8%
- Chesapeake Energy (CHK) – 47.1%
- EQT (EQT) – 44.3%
- Antero Resources (AR) – 38.1%
- Memorial Resource Development (MRD) – 37.9%
- Cabot Oil & Gas (COG) – 37.7%
- Range Resources (RRC) – 37.4%
The following natural gas–weighted stocks correlated the least with natural gas futures over this period:
Natural gas–weighted stocks with high correlations to natural gas futures moved with natural gas. On the other hand, stocks with low correlations weren’t impacted as much by natural gas price movements.
In the next part of this series, we’ll see how natural gas–weighted stocks performed compared to natural gas.