Natural Gas: What Does the Futures Spread Indicate?

Futures spread

On December 4, the natural gas futures for January 2019 closed at a premium of ~$1.3 to the January 2020 futures. On November 27, the futures spread was at a premium of $1.2. On November 27–December 4, natural gas January futures rose 3.8%.

Natural Gas: What Does the Futures Spread Indicate?

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 and natural gas prices rose by nearly four 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 January futures rose 3.8% in the trailing week. During this period, natural gas–weighted stocks Range Resources (RRC), Chesapeake Energy (CHK), Antero Resources (AR), and Southwestern Energy (SWN) have fallen 1.9%, 3.3%, 5.4%, and 6.8%, respectively, and underperformed their peers.

Forward curve

As of December 4, the natural gas futures contracts for delivery between January 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).