What the Futures Spread Says about Natural Gas Prices



Futures spread

On July 3, natural gas August 2018 futures closed at a premium of ~$0.17 to August 2019 futures, and on June 26, the futures spread was at a premium of ~$0.23. Between June 26 and July 3, natural gas August futures fell 2.1%.

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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 the market expects the dynamic between demand and supply to tilt in favor of the latter. In the previous parts of this series, we saw how natural gas production has been surging and how natural gas inventories are rising back to their five-year average.

Energy stocks and ETFs

A fall in natural gas prices could impact natural gas-weighted stocks such as Cabot Oil & Gas (COG), Range Resources (RRC), and Southwestern Energy (SWN), which have fallen 0.5%, 0.9%, and 1.1%, respectively, in the past five trading sessions. Natural gas August futures have fallen 2.1%.

Forward curve

As of July 3, natural gas futures contracts for delivery between August and September were priced in descending order, a positive for ETFs that follow natural gas futures, including the ProShares Ultra Bloomberg Natural Gas ETF (BOIL) and the United States Natural Gas ETF (UNG).


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