On October 24, 2016, the natural gas futures (UNG) (BOIL) (FCG) contracts for November delivery closed at $2.83 per MMBtu (million British thermal units). They were ~5.4% below their previous closing price.
In the last few trading sessions, natural gas prices have been falling due to the bearish natural gas inventories report last week and warmer weather forecasts. Natural gas prices fell on October 24, 2016, due to expectations of higher temperatures. Warmer weather reduces the demand for natural gas for heating.
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 natural gas–heavy upstream companies had the greatest correlation to natural gas futures between September 24 and October 24, 2016:
- Range Resources (RRC) – 42.1%
- Southwestern Energy (SWN) – 39.4%
- Gulfport Energy (GPOR) – 39.2%
- Antero Resources (AR) – 31.1%
- Rice Energy (RICE) – 29.9%
- Chesapeake Energy (CHK) – 11.7%
- EQT (EQT) – 3.2%
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 or negative correlations weren’t impacted as much by natural gas price movements.
Overall, most of the natural gas–weighted stocks discussed above had a relatively high correlation with US crude oil compared to natural gas in the past month. It shows how the market sentiment around crude oil can impact the entire energy complex and not just oil-heavy upstream energy stocks.
In the next part of this series, we’ll see how natural gas–weighted stocks performed compared to natural gas.