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Natural Gas, Winter Rise: Are Gas-Weighted Stocks Capitalizing?

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Natural gas–weighted stocks and natural gas

In the previous part, we looked at the rise in natural gas prices on December 5, 2016, due to cooler weather. Between November 28 and December 5, 2016, natural gas futures contracts for January delivery rose 9.9%.

An equally weighted basket of natural gas–weighted stocks rose 7.6% 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 November 28 to December 5, 2016. Natural gas–weighted stocks that outperformed their peers during this period include the following:

  • Chesapeake Energy (CHK): 18.0%
  • WPX Energy (WPX): 15.5%
  • Antero Resources (AR): 8.9%

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

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 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 5, 2016, natural gas (UNG) (BOIL) (UGAZ) (FCG) rose 122.6% on a closing price basis. Our basket of equally weighted upstream stocks only rose 60.0% 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): 182.5%
  • Rice Energy (RICE): 153.9%
  • Chesapeake Energy (CHK): 75.2%

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

  • Antero Resources (AR): 11.0%
  • Gulfport Energy (GPOR): 9.5%
  • Cabot Oil & Gas (COG): 6.9%

So natural gas–weighted stocks underperformed natural gas in the last five trading sessions and since the low in March. We need to wait and see if the trend continues, particularly if natural gas remains bullish due to the weather getting colder.

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