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Natural Gas Reversed: Why Are Energy Stocks Underperforming?

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Natural gas–weighted stocks and natural gas

Between September 12 and September 19, 2016, an equally weighted basket of natural gas–weighted stocks fell 8%. These stocks operate with a production mix of at least 60% in natural gas (UNG) (BOIL) (UGAZ) (FCG). They’re also part of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP). There was a 0.7% rise in natural gas futures contracts for October delivery for the same period. The stock returns are adjusted for dividends.

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Best and worst natural gas stocks

Below are the returns for the best-performing and worst-performing stocks from our basket of natural gas–weighted stocks from September 12 to September 19, 2016. Natural gas–weighted stocks that outperformed their peers during this period include:

  • Southwestern Energy (SWN) at -1.9%
  • Gulfport Energy (GPOR) at -3.7%
  • Chesapeake Energy (CHK) at -4.4%

Natural gas–weighted stocks that underperformed natural gas during this period were:

  • Antero Resources (AR) at -15.4%
  • Cabot Oil & Gas (COG) at -13.4%
  • WPX Energy (WPX) at -11.8%

In the previous part of this series, we saw how natural gas impacted these stocks. Apart from their earnings in the long term, the performance of these natural gas–weighted stocks could be impacted by the movement in crude oil (USO) (UCO) prices in the short term. We discussed crude oil prices in Part 1 of this series. Crude oil fell ~6.5% between September 12 and 19.

Performance of 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. From March 3 to September 19, 2016, natural gas (UNG) (BOIL) (UGAZ) (FCG) rose 78.9% on a closing price basis. Our basket of equally weighted upstream stocks only rose 4.4% during the same period.

The small gain in gas-weighted stocks compared to natural gas could be attributed to the movement in crude oil prices. Crude oil prices can drive the sentiment in the entire energy complex and not just in crude oil stocks. Here’s how some of the companies in the basket performed during this period.

The following natural gas–weighted stocks were among the outperformers:

  • WPX Energy – 56.3%
  • Rice Energy (RICE) – 39.9%
  • Cabot Oil & Gas (COG) – 12.6%

The following natural gas–weighted stocks didn’t fare as well:

  • Memorial Resource Development (MRD) at -24%
  • Gulfport Energy (GPOR) at -22.7%
  • Chesapeake Energy (CHK) at -17.8%
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