Will Natural Gas Prices Fall to $2.8 Next Week?

Rabindra Samanta - Author

Nov. 20 2020, Updated 5:27 p.m. ET

Natural gas’s implied volatility

On November 2, 2017, natural gas’s (GASL) (GASX) implied volatility was 38.2%, 1.8% below its 15-day average.

Most of the time, natural gas prices and implied volatility move in opposite directions. For example, on March 3, 2016, natural gas active futures were at their 17-year lowest closing price. On the same day, the implied volatility was 53.8%. Since then, the implied volatility fell ~29% and natural gas active futures rose 79.1%.

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Price forecast

Assuming normally distributed prices, implied volatility of 38.2%, and a standard deviation of one, in the next seven days, natural gas active futures could settle between $2.78 and $3.09 per MMBtu (million British thermal units). The probability for this price range stood at 68%.

On November 2, 2017, natural gas futures settled at $2.94 per MMBtu, below the $3 mark. So, any further fall from this level could make natural gas prices close at the $2.8 level, which could impact ETFs such as the United States Natural Gas Fund LP (UNG), the ProShares Ultra Bloomberg Natural Gas (BOIL), and the First Trust ISE-Revere Natural Gas ETF (FCG). These ETFs aim to follow natural gas futures.

Read Is More Pain Waiting for Natural Gas’s Bulls? to know more about natural gas prices.


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