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Are Gas-Weighted Stocks Outperforming Natural Gas?

Rabindra Samanta - Author
By

Aug. 18 2020, Updated 4:44 a.m. ET

Natural gas–weighted stocks and natural gas

In the previous part, we looked at the fall in natural gas prices on December 19, 2016, due to higher temperature forecasts. Between December 12 and December 19, 2016, natural gas futures contracts for January delivery fell 3.3%.

An equally weighted basket of natural gas–weighted stocks fell 5.3% 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).

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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 December 12 to December 19, 2016. Natural gas–weighted stocks that outperformed their peers during this period include the following:

  • WPX Energy (WPX) – 3.8%
  • Chesapeake Energy (CHK) at -0.5%
  • Antero Resources (AR) at -3.6%

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

  • Cabot Oil & Gas (COG) at -6.1%
  • Southwestern Energy (SWN) at -7%
  • Gulfport Energy (GPOR) at -17.2%

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.

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 December 19, 2016, natural gas (UNG) (BOIL) (UGAZ) (FCG) rose 106.7% on a closing price basis. Our basket of equally weighted upstream stocks only rose 47.7% 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 – 189.6%
  • Rice Energy – 112%
  • Chesapeake Energy – 71.2%

WPX Energy and Rice Energy outperformed not just their peers, but also natural gas since the commodity’s 2016 low.

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

  • Antero Resources (AR) – 2.1%
  • Cabot Oil & Gas at -1.2%
  • Gulfport Energy at -9.9%

So, natural gas–weighted stocks underperformed natural gas since the low in March. We need to wait and see if the trend continues, particularly if natural gas looks bullish during the winter.

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