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Natural Gas Futures Market: Demand and Supply Expectations

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Futures spread

On June 19, natural gas July futures closed at a premium of ~$0.24 to July 2019 futures. The difference is called the “futures spread.” On June 12, the futures spread was at a premium of ~$0.27. On June 12–19, natural gas July futures fell 1.3%.

Futures spread and natural gas market

The market’s sentiments around natural gas’s demand-supply situation are reflected in the futures spread. In the past five trading sessions, the premium contracted along with a more than 1% fall in natural gas prices. A contraction in the premium could reflect concerns about natural gas supplies outpacing demand. We discussed the possible upside in natural gas production in Part 2 of this series.

Energy stocks and ETFs

Any fall in natural gas prices could have a negative impact on natural gas–weighted stocks like Chesapeake Energy (CHK), Antero Resources (AR), and Cabot Oil & Gas (COG). On June 12–19, these three stocks returned -0.4%, 1%, and 1.5%, respectively—the underperformers on our list of natural gas–weighted stocks. Natural gas July futures fell 1.3% during this period. Most of the natural gas–weighted stocks on our list rose despite the fall in natural gas prices.

Forward curve

As of June 19, the natural gas futures contracts for delivery between July and August were priced in ascending order—a negative situation for ETFs that follow natural gas futures like the ProShares Ultra Bloomberg Natural Gas (BOIL) and the United States Natural Gas ETF (UNG).

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