Futures Spread: Less Bullish Sentiments for Natural Gas



Futures spread

On October 16, the natural gas futures for November closed at a premium of ~$0.42 to the November 2019 futures. On October 9, the futures spread was at a premium of $0.46. On October 9–16, natural gas November futures fell 0.8%.

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What lowered the bullish sentiments 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 contracted. Natural gas prices fell by almost one percentage point. The fall in the premium might be due to production resuming after Hurricane Michael. As of October 16, in the Gulf of Mexico, 3.5% or 90 million cubic feet per day of natural gas production has been disrupted due to Hurricane Michael—compared to 29.1% or 744 million cubic feet per day on October 11, according to the Bureau of Safety and Environmental Enforcement’s estimates. The expectations of lower natural gas demand are bearish for natural gas prices.

Energy stocks and ETFs

Natural gas November futures fell 0.8% in the trailing week. During this period, natural gas–weighted stocks Antero Resources (AR), Cabot Oil & Gas (COG), Gulfport Energy (GPOR), and Range Resources (RRC) fell 1.7%, 2.1%, 2.2%, and 5.1%, respectively. These stocks were the underperformers among natural gas–weighted stocks.

Forward curve

As of October 16, the natural gas futures contracts for delivery between November 2018 and January 2019 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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