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Natural Gas–Weighted Stocks Ignore the Fall in Natural Gas

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Natural gas–weighted stock returns

In the week ending July 3, 2017, natural gas–weighted stocks in the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) moved in the opposite direction from natural gas (UNG) (BOIL) prices. During this period, natural gas active futures fell 3.2%—compared to an average gain of 4.2% in natural gas–weighted stocks.

In fact, as we discussed in the previous part, most of these natural gas–weighted stocks had negative correlations with natural gas in the trailing week to July 3, 2017. Their returns were more aligned to the 8.5% gain in US crude oil August futures during this period. We discussed crude oil in Part 1 of this series.

Natural gas–weighted stocks that outdid their peers on June 26–July 3, 2017, are as follows:

  • Chesapeake Energy (CHK) rose 9.6%.
  • WPX Energy (WPX) rose 7.3%.
  • Southwestern Energy (SWN) rose 6.8%.

Interestingly, WPX Energy was the only natural gas–heavy stock in XOP that was positively correlated with crude oil on June 26–July 3, 2017.

Natural gas–weighted stocks that underperformed among their peers during this period are as follows:

  • Range Resources (RRC) rose 2.5%.
  • EQT (EQT) rose 2.4%.
  • Rice Energy (RICE) fell 2.9%.

Remember, Rice Energy was the only natural gas–weighted stock that had a high positive correlation with natural gas active futures in the week ending July 3, 2017, as we discussed in Part 3 of this series.

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Long-term performance analysis

On March 3, 2016, natural gas active futures closed at their 17-year low. Since then, natural gas active futures have recovered 79.9%—compared to a rise of 21.9% in natural gas–weighted stocks.

Natural gas–weighted stocks such as Rice Energy, WPX Energy, and Chesapeake Energy rose 157.2%, 91.6%, and 19.9% on March 3, 2016, and July 3, 2017. These three stocks rose the most among natural gas–weighted stocks in XOP.

On the other hand, Southwestern Energy, Range Resources, and Gulfport Energy (GPOR) fell 14.2%, 23.3%, and 40.4%, during this period. These stocks were the top losers among natural gas–weighted stocks during this period.

So, natural gas–weighted stocks outperformed natural gas active futures in the week ending July 3, 2017. However, natural gas active futures have outperformed gas–weighted stocks since March 3, 2016.

To learn more about upstream companies, read Market Realist’s premier on upstream stocks.

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