On October 17, 2016, natural gas futures (UNG) (BOIL) (FCG) contracts for November delivery closed at $3.24 per MMBtu (million British thermal units). They were ~1.2% below their previous closing price.
In the last few trading sessions, natural gas prices have been trending higher because of natural gas inventories coming back into balance. However, natural gas prices fell on October 17, 2016, on expectations of warmer weather reducing demand for natural gas for heating purposes. The rise in the number of active natural gas rigs also helped pressure prices.
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 17 and October 17, 2016:
- Southwestern Energy (SWN): 26%
- Rice Energy (RICE): 22.4%
- Gulfport Energy (GPOR): -19.5%
- Range Resources (RRC): -17.3%
- Antero Resources (AR): 17.1%
- EQT (EQT): 13.5%
The following natural-gas-weighted stocks correlated the least, or negatively, 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.
Interestingly, natural-gas-heavy stocks that were negatively correlated with natural gas had high positive correlations with US crude oil over the past month. Overall, natural-gas-weighted stocks had a relatively high correlation with US crude oil compared to natural gas in the past one month. This shows how market sentiments about crude oil can affect the entire energy complex rather than 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.