Natural Gas Fell: Gas-Weighted Stocks Could Follow

Rabindra Samanta - Author

Aug. 18 2020, Updated 6:40 a.m. ET

Natural Gas

On July 31, 2017, natural gas (UNG) (BOIL) (FCG) September futures closed at $2.79 per MMBtu (million British thermal units)—5% below their close on July 30. Forecasts for temperatures to be below normal during the summer could be behind the large fall in natural gas prices.

On July 24–31, 2017, natural gas September futures fell 3.1%. During the same period, the S&P 500 Index (SPY) was flat, while the Dow Jones Industrial Average Index (DIA) rose 1.8%. These equity indexes have some investment in energy sector stocks.

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Gas-weighted stocks

Natural gas fell, which could be an important factor for upstream natural gas–weighted stocks that operate with a minimum production mix of 60% in natural gas and constitute the SPDR S&P Oil & Gas Exploration & Production ETF (XOP). Let’s analyze the gas-weighted stocks that had the highest correlations with natural gas prices in the last five trading sessions.

  • Chesapeake Energy (CHK) – 90.8%
  • Gulfport Energy (GPOR) – 90%
  • Southwestern Energy (SWN) – 89.9%
  • EQT (EQT) – 89.1%
  • Rice Energy (RICE) – 87.6%

The following natural gas–weighted stocks from XOP had the lowest correlations with natural gas futures in the trailing week.

  • Range Resources (RRC) – 82.1%
  • Cabot Oil & Gas (COG) – 82%

So, based on the above correlations, natural gas would have impacted these gas-weighted stocks’ returns in the trailing week. Before arriving at a conclusion, we’ll measure the correlations of these gas-weighted stocks with oil prices. Crude oil can be an important driver of the sentiment across the energy complex.


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