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Futures Spread: Are Natural Gas’s Bullish Sentiments Rising?

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Nov. 20 2020, Updated 1:45 p.m. ET

Futures spread

On September 25, the natural gas futures for November closed at a premium of ~$0.35 to their November 2019 futures. On September 18, the futures spread was at a premium of $0.20. On September 18–25, natural gas November futures rose 5.6%.

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More bullish sentiment for natural gas?

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 expanded. Natural gas prices rose by nearly six percentage points. The rise in the premium might signal bullish sentiment for natural gas prices. However, any fall in natural gas’s demand estimates in the next week might drag the premium in the future.

Energy stocks and ETFs

Natural gas November futures rose 5.6% in the trailing week. During this period, natural gas–weighted stocks Range Resources (RRC), Cabot Oil & Gas (COG), Southwestern Energy (SWN), and Chesapeake Energy (CHK) rose 6.1%, 7%, 10.8%, and 11.9%, respectively. These stocks were the outperformers among natural gas–weighted stocks.

Forward curve

As of September 25, the natural gas futures contracts for delivery between November and December were priced in ascending order—a negative development 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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