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US Natural Gas Futures and S&P 500 Could Diverge Next Week

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Natural gas futures  

March US natural gas futures contracts fell 4.6% to $2.85 per MMBtu (million British thermal units) on February 1, 2018. Prices hit a three-week low. Prices fell due to the less-than-expected withdrawal in natural gas inventories and less heating demand, which impacts the VelocityShares 3x Long Natural Gas (UGAZ). UGAZ fell 9.1% to 72.3 on February 1, 2018.

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US natural gas price performance 

March US natural gas futures fell 7.8% on January 25–February 1, 2018. Prices declined due to mild weather forecasts and the less-than-expected withdrawal in US natural gas inventories.

Active natural gas futures declined 21.1% in the last three days—the biggest three-day decline since 2005. The mild weather forecast for the next two weeks has been the key bearish driver for natural gas prices. Lower natural gas prices are bearish for energy companies like Comstock Resources (CRK), Ultra Petroleum (UPL), Gulfport Energy (GPOR), and Southwestern Energy (SWN). All of the above factors could extend natural gas prices’ bearish momentum next week.

Meanwhile, US natural gas futures have dropped 10% in the last 12 months due to mild weather, high natural gas production, and weak natural gas demand.

Wall Street’s performance  

The S&P 500 (SPY) fell 0.06% to 2,821.98, while the NASDAQ (QQQ) fell 0.35% to 7,385.86 on February 1, 2018. The Dow Jones Industrial Average (DIA) rose 0.14% to 26,186.71, on February 1, 2018. All three of the indexes closed at a record level on January 26, 2018.

The S&P 500 fell 0.6% in the last five sessions. The materials, energy, and healthcare sectors fell 2.7%, 1.8%, and 1.7%, respectively, in the last five sessions. These sectors dragged SPY the most during this period. However, SPY has risen 5.5% in the past month. The consumer discretionary, IT, and financials sectors have been driving SPY in the past month. They could drive SPY in the coming weeks too.

Reuters estimates 4Q17 earnings growth of 14.9% for S&P 500 companies. Strong earnings results have also been driving SPY.

Series overview  

In this series, we’ll discuss US natural gas inventories, the natural gas rig count, production and consumption, and natural gas price forecasts.

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