Analyzing the Natural Gas Futures Spread



Futures spread

On September 6, 2017, natural gas (UNG) October 2018 futures settled at a discount of $0.06 to October 2017 futures. On August 30, 2017, the discount between the two futures contract was at $0.03. Between these two dates, natural gas active futures rose 2.1%.

Article continues below advertisement

Futures spread at a discount

When the discount between the two futures contracts increases, like it did in the trailing week, natural gas prices usually gain. For example, the discount was at $0.5 on May 12, 2017. On the same day, natural gas active futures settled at their 2017 high.

Futures spread at a premium

When the futures spread shifts to a premium or when the premium expands, natural gas prices usually fall. For example, the premium rose to $0.84 on March 3, 2016. On the same day, natural gas active futures settled at their 17-year low.

In the past four trading sessions, the discount has expanded and natural gas prices gained. Moves in the futures spread could point to changes in the supply-demand dynamics and drive prices.

Energy stocks

The natural gas futures spread and the forward curve could be important for upstream and midstream companies. They could impact US natural gas producers’ (XOP) (IEO) (DRIP) hedging decisions. Midstream companies’ (AMLP) natural gas storage and transportation operations could be impacted.

The spread between October 2017 and November 2017 futures contracts could impact ETFs such as the United States Natural Gas Fund (UNG).

For more update on upstream stocks, visit Market Realist’s Energy and Power page.


More From Market Realist