Can Natural Gas Stay above $3 Next Week?



Natural gas’s volatility

On November 30, 2017, natural gas’s implied volatility was 44.3%, about 1% above its 15-day average. On November 29, 2017, natural gas’s implied volatility was 47.7%, its highest level in 2017.

Natural gas (GASL) (GASX) and its implied volatility are usually inversely related, as the graph above illustrates. However, any sharp movement in a security could cause its volatility to rise regardless of the direction of the movement. The recent sharp moves in natural gas are behind the rise in its volatility.

Price forecast

Between December 1 and December 7, 2017, at a probability of 68%, natural gas futures could settle in the price range of $2.84 and $3.21 per MMBtu. This model assumes that prices are normally distributed. Moreover, for this model, natural gas’s implied volatility was set to 44.3% and a standard deviation of one was used.

On November 30, 2017, natural gas active futures closed at $3.025 per MMBtu. ETFs that track natural gas like 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) may fall if natural gas prices slip below the $3 level.

Follow our Energy and Power page for important updates on natural gas prices.

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