Natural Gas’s Futures Spread: More Bullish Sentiments

Futures spread

On November 20, the natural gas futures for December closed at a premium of ~$1.64 to the December 2019 futures. On November 13, the futures spread was at a premium of $1.14. On November 13–20, natural gas December futures rose 10.3%.

Natural Gas’s Futures Spread: More Bullish Sentiments

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 expanded by a higher margin. Natural gas prices rose above 10 percentage points. The rise in the premium might be due to the expectation of higher total degree days in the past. In the previous part, we saw that natural gas inventories are at a double-digit deficit in percentage terms compared to their five-year average.

Energy stocks

Natural gas December futures rose 10.3% in the trailing week. During this period, natural gas–weighted stocks Antero Resources (AR), Range Resources (RRC), Chesapeake Energy (CHK), and Cabot Oil & Gas (COG) fell 12.6%, -11.8%, 10.1%, and 4.5%, respectively. These stocks were the outperformers among natural gas–weighted stocks. The remaining natural gas–weighted stocks ended in the red during this period.

Forward curve

As of November 20, the natural gas futures contracts for delivery between December 2018 and May 2019 were priced in descending order, which is a positive 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).