Natural gas

On October 30, 2017, natural gas (UNG) (BOIL) December futures rose 0.1% and closed at $2.97 per MMBtu (million British thermal unit), which was below the crucial $3 level.

Natural Gas Below $3: Does It Matter to Gas–Weighted Stocks?

From October 23–30, 2017, natural gas futures fell 6%, while US crude oil futures rose 4.3%. Over that period, both the S&P 500 Index (SPY) and the Dow Jones Industrial Average Index (DIA) rose 0.3%. Positive US crude oil prices may boost these equity indexes despite weak natural gas prices. The bearish weather outlook could be behind the natural gas downturn.

Natural gas–weighted stocks’ correlations

Natural gas–weighted stocks from the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) have a minimum 60% production mix in natural gas. All of them have a negative correlation with natural gas. Here are the natural gas–weighted stocks that had the least negative correlations with natural gas prices:

  • Antero Resources (AR): -2.4%
  • Gulfport Energy (GPOR): -8%
  • WPX Energy (WPX): -11%

Below are the natural gas–weighted stocks with the most negative correlations with natural gas prices in the seven calendar days to October 30, 2017:

  • Rice Energy (RICE): -35.9%
  • EQT (EQT): -43.1%
  • Southwestern Energy (SWN): -59.2%

SWN closed in the green in the trailing week. So these natural gas–weighted stocks may have ignored the fall in natural gas prices based on their correlations with natural gas. We’ll look at these stock returns in the last part of this series.

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