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Natural Gas Falls: Where Are Gas-Weighted Stocks Headed?

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Natural gas–weighted stocks and natural gas

Between October 24 and October 31, 2016, an equally weighted basket of natural gas–weighted stocks fell 5.4%. These stocks operate with a production mix of at least 60% in natural gas (UNG) (BOIL) (UGAZ) (FCG) (GASL). They’re also part of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP). There was an 8.8% fall in natural gas futures contracts for November delivery for the same period.

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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 October 24 to October 31, 2016. Natural gas–weighted stocks that outperformed their peers during this period included:

  • EQT (EQT) – 4%
  • Antero Resources (AR) – 1.6%
  • Cabot Oil & Gas Corporation (COG) at -1.1%

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

  • Southwestern Energy (SWN) at -7.2%
  • WPX Energy (WPX) at -11.7%
  • Chesapeake Energy (CHK) at -13.4%

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 also be impacted by movements in crude oil (USO) (UCO) prices in the short term. Crude oil prices can drive the sentiment for the entire energy complex and not just for crude oil stocks.

We discussed crude oil prices in Part 1 of this series. We discussed the correlations of these stocks with natural gas and crude oil in the previous part of this series. Crude oil fell 7.2% between October 24 and October 31, 2016.

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 October 31, 2016, natural gas (UNG) (BOIL) (UGAZ) (FCG) rose 84.5% on a closing price basis. Our basket of equally weighted upstream stocks only rose 8.2% during the same period.

The smaller gain in gas-weighted stocks compared to natural gas could be attributed to the weaker position that some of these natural gas–heavy companies are in due to chronically low natural gas prices over the last few years.

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 – 58.3%
  • Rice Energy – 44.8%
  • Antero Resources – 12.3%

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

  • Southwestern Energy at -5.9%
  • Gulfport Energy at -20.9%
  • Chesapeake Energy at -22.7%
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