Natural Gas–Weighted Stocks’ Returns and Oil Prices



Natural gas–weighted stocks

Natural gas–weighted stocks from the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) collectively rose 1.9% on July 24–31, 2017. During the same period, natural gas September futures fell 3.1%. Interestingly, US crude oil (USL) September futures rose 8.3% in the last five trading sessions. We discussed the correlations of gas-weighted stocks with oil in the previous part. High correlations could mean that oil even tends to impact natural gas–weighted stocks.

The returns of the natural gas–weighted stocks that outperformed in the seven calendar days to July 31, 2017, were:

  • Chesapeake Energy (CHK) – 6.4%
  • WPX Energy (WPX) – 5.6%
  • Range Resources (RRC) – 3.4%
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However, Chesapeake Energy had a higher correlation with natural gas prices compared to oil prices—also true for WPX Energy and Range Resources. In Part 3 and Part 4 of this series, we discussed the correlations of natural gas–weighted stocks with natural gas and crude oil. However, their returns are more aligned to the gain in oil prices instead of a fall in natural gas prices.

The returns of natural gas–weighted stocks that underperformed on July 24–31, 2017, were:

  • Cabot Oil & Gas (COG) – 4%
  • Antero Resources (AR) at -0.9%
  • Gulfport Energy (GPOR) at -2.1%

Since March 2016

Between March 3, 2016, and July 31, 2017, these natural gas–weighted stocks from XOP collectively rose 22.9%. However, natural gas active futures rose 70.4% from the 17-year low on March 3, 2016—more than three times these natural gas–weighted stocks’ returns.

The natural gas–weighted stocks below were the outperformers between these two dates:

  • Rice Energy (RICE) – 180.8%
  • WPX Energy – 106.9%
  • Chesapeake Energy – 16.2%

However, natural gas–weighted stocks such as Southwestern Energy (SWN), Range Resources, and Gulfport Energy fell 22.3%, 31%, and 50.1%, respectively, between these two dates and underperformed their peers.

So, natural gas futures have outdone natural gas–weighted stocks since March 3, 2016. However, they were the underperformer in the trailing week. The high correlations of natural gas–weighted stocks with crude oil could explain the stocks’ recent outperformance against natural gas futures.

Keep an eye on Market Realist’s coverage on natural gas prices every Thursday.


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