Are Gas-Weighted Stocks Outperforming Natural Gas?

In the previous part, we looked at the rise in natural gas prices on December 23, 2016, due to lower temperature forecasts. Between December 16 and December 23, 2016, natural gas futures contracts for February delivery rose 6.6%.

An equally weighted basket of natural-gas-weighted stocks fell 3.1% for the same period. These stocks operate with a production mix of at least 60.0% in natural gas (UNG) (BOIL) (UGAZ) (FCG) (GASL). They’re also part of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).

Below are the returns for the best-performing and worst-performing stocks from our basket of natural-gas-weighted stocks from December 16 to December 23, 2016. Natural-gas-weighted stocks that outperformed their peers during this period include the following:

• Rice Energy (RICE): 6.7%
• Southwestern Energy (SWN): 5%
• Cabot Oil & Gas (COG): 4.6%

Natural-gas-weighted stocks that underperformed their peers during this period include the following:

• EQT (EQT): 2%
• Range Resources (RRC): 1.2%
• Antero Resources (AR): -0.7%

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 sector, not just for crude oil stocks.

On March 3, 2016, natural gas futures touched a 17-year low of $1.64. From March 3 to December 23, 2016, natural gas (UNG) (BOIL) (UGAZ) (FCG) rose 124.3% on a closing price basis. Our basket of equally weighted upstream stocks only rose 49.6% during the same period.

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

Here’s how some of the companies in our basket performed during this period. The following natural-gas-weighted stocks were among the outperformers:

• WPX Energy (WPX): 187.7%
• Rice Energy: 120.2%
• Chesapeake Energy (CHK): 74.2%

The following natural-gas-weighted stocks didn’t fare as well over this period:

• Cabot Oil & Gas: 3.1%
• Antero Resources (AR): 1.6%
• Gulfport Energy (GPOR): -11.4%

So, natural-gas-weighted stocks have underperformed natural gas since the low in March. We’ll have to wait and see if this trend continues, particularly if natural gas looks bullish during the winter.