Natural gas’s implied volatility
On November 8, natural gas’s implied volatility was 47.4%, which was ~10.7% above its 15-day moving average and the highest level since January 30. In the trailing week, natural gas’s implied volatility rose 15.9%. Natural gas December futures rose 9.5% during the same period. Since June, these two metrics have been moving in tandem.
Natural gas prices and the weather forecast
Based on natural gas’s implied volatility of 47.4% and assuming a normal distribution of prices, natural gas futures are expected to close between $3.33 and $3.76 per MMBtu 68.0% of the time until November 16.
On November 8, natural gas December futures fell 0.3% to $3.543 per MMBtu—near its nine-month high. Reuters noted that for the next two weeks, Refinitiv analysts increased the total degree days to 365 on November 8 from 358 on November 7 in the Lower 48 US states.
The natural gas use for heating might increase more than previously expected. The total degree days are also much higher than the 30-year average of 278 degree days for this period. Due to the colder winter forecast, natural gas prices could move near the higher limit of our price forecast next week, which would be the highest closing level for natural gas in 2018.
Impact on ETFs and stocks
These price limits could be important for ETFs that follow natural gas futures. In the trailing week, the ProShares Ultra Bloomberg Natural Gas ETF (BOIL) rose 17.3%. Natural gas prices rose 9.5% during the same period.
Natural gas–weighted stocks Gulfport Energy (GPOR), Range Resources (RRC), Cabot Oil & Gas (COG), and Southwestern Energy (SWN) have risen 1.7%, 3.3%, 3.9%, and 4.2%, respectively, in the trailing week. These stocks outperformed other natural gas–weighted stocks in the trailing week.