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Are Oversupply Concerns Worrying Natural Gas Traders?

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Futures spread

On July 17, natural gas August 2018 futures closed at a premium of ~$0.11 to August 2019 futures, compared with ~$0.12 on July 10. Between July 10 and July 17, natural gas August futures fell 1.7%.

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Futures spread and the natural gas market

The market sentiment toward natural gas’s demand-supply situation is reflected in the futures spread. The futures spread and natural gas prices tend to move in the same direction.

In the past five trading sessions, the premium has contracted, and natural gas prices have fallen ~2%. A contraction in the premium could mean that the market expects the dynamic between demand and supply to tilt in favor of the latter. Forecasts of rising natural gas production may have intensified natural gas oversupply concerns.

Energy stocks and ETFs

Natural gas August futures have fallen 1.7% in the last week, which may have limited the upside in natural gas–weighted stocks Southwestern Energy (SWN), Gulfport Energy (GPOR), and Chesapeake Energy (CHK), which have fallen 4.4%, 5.5%, and 11.7%, respectively, and underperformed other natural gas–weighted stocks.

Forward curve

As of July 17, natural gas futures contracts for delivery between August and September were priced in descending order—a positive factor for ETFs that follow natural gas futures such as the ProShares Ultra Bloomberg Natural Gas ETF (BOIL) and the United States Natural Gas ETF (UNG).

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