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Are Supply Concerns Rising for Natural Gas?

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Nov. 20 2020, Updated 4:45 p.m. ET

Futures spread

On April 3, 2018, natural gas May 2018 futures closed at a premium of $0.04 to May 2019 futures. The difference is called the “futures spread.” On March 27, 2018, the futures spread was at a premium of $0.08. During this period, natural gas May futures fell 0.6%.

The market sentiment for natural gas’s demand and supply situation is reflected in the futures spread. In the trailing week, the premium declined with a slight fall in natural gas prices. A fall in the premium could mean that the market sees supply rising faster than demand in the near term.

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Energy stocks and ETFs

The contraction in the premium could hint at more weakness in natural gas prices, which could have a negative impact on natural gas–weighted stocks like Range Resources (RRC), Antero Resources (AR), and Cabot Oil & Gas (COG). On March 27–April 3, 2018, Range Resources, Antero Resources, and Cabot Oil & Gas fell 2.4%, 1.9%, and 1.1%. Natural gas May futures fell 0.6% during this period.

Forward curve

As of April 3, 2018, the natural gas futures contracts for delivery between May and August 2018 were priced in an ascending order. The price pattern might have a negative impact on natural gas following ETFs like the ProShares Ultra Bloomberg Natural Gas (BOIL) and the United States Natural Gas ETF (UNG).

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