9 Aug

Why Natural Gas Recovery Could Affect Gas-Weighted Stocks

WRITTEN BY Rabindra Samanta

Natural gas futures

On August 7, 2017, natural gas (UNG) (BOIL) September futures rose 1.0% and closed at $2.80 per MMBtu (million British thermal units). The forecast of higher temperatures raised natural gas prices to the $2.80 psychologically important level.

Why Natural Gas Recovery Could Affect Gas-Weighted Stocks

However, between July 31, 2017, and August 7, 2017, natural gas September futures rose just 0.30%. During that time period, the S&P 500 Index (SPY) and the Dow Jones Industrial Average Index rose 0.40% and 1.4%, respectively. These equity indexes have some exposure to oil and gas companies.

Also, the rise in US crude oil production could increase natural gas supplies, a factor that could limit natural gas’s upside. We looked at US crude oil production in Part 1 of this series.

 Natural gas–weighted stocks

Our natural gas–weighted stocks in this series belong to the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) and operate with a minimum production mix of at least 60.0% in natural gas.

Natural gas–weighted stocks that had the highest or least negative correlations with natural gas prices between July 31, 2017, and August 7, 2017, are the following:

  • Cabot Oil & Gas (COG): 13.5%
  • Southwestern Energy (SWN): -1.9%
  • Rice Energy (RICE): -3.4%
  • Antero Resources (AR): -7.3%
  • EQT (EQT): -8.9%

Natural gas–weighted stocks that had the most negative correlations with natural gas during the same time period are the following:

  • WPX Energy (WPX): -20.1%
  • Chesapeake Energy (CHK): -76.6%

So based on the correlations, natural gas prices may have some influence on natural gas–weighted stocks. In the next part of this series, we’ll analyze the correlations of these gas–weighted stocks with crude oil.

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