Natural gas’s implied volatility

On June 15, 2017, US natural gas (GASX) (BOIL) active futures’ implied volatility was 35.7%, 1.7% above its 15-day average.

Will Natural Gas Prices Fall below $3?

US natural gas futures’ implied volatility fell 0.9% in the trailing week to June 15, 2017. During this period, natural gas active futures rose 0.9%. In part one of this series, we discussed the factors that impacted natural gas prices between June 8 and June 15, 2017. As seen in the chart above, this inverse relationship has broadly held in the past too.

Natural gas’s implied volatility peak

On November 14, 2016, natural gas active futures’ implied volatility climbed to 56.2%. Since then, their implied volatility fell 36.5%. Natural gas active futures rose 11.1% during this period. Notably, on November 11, 2016, natural gas active futures settled at the lowest price since August 22, 2016.

Natural gas price forecast

In the next seven days, natural gas active futures could settle between $2.90 and $3.21 per million British thermal units. The assumption is based on a normally distributed bell curve with the following parameters:

  • standard deviation of 1.0
  • implied volatility of 35.7%

On June 15, 2017, natural gas active futures settled at 3.1 per million British thermal units.

Mild weather forecasts could drag natural gas prices below the $3 level again. If natural gas futures fall below the $3 mark, it could negatively impact ETFs such as the United States Natural Gas Fund LP (UNG) and the Direxion Daily Natural Gas Related Bull and Bear 3X Shares ETF (GASL).

To know more about natural gas price movement, track our weekly coverage on natural gas.

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