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Natural Gas: What Might Be the Downside Next Week?

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Natural gas’s implied volatility

On December 20, natural gas’s implied volatility was ~75%, which was ~9.1% below its 15-day moving average. In the trailing week, natural gas’s implied volatility fell 8%. Natural gas January futures fell 13.1% during the same period. Since June, these two metrics have been moving in tandem.

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Natural gas prices and the weather forecast

Based on natural gas’s implied volatility of 75% and assuming a normal distribution of prices, natural gas futures are expected to close between $3.24 and $3.92 per MMBtu (million British thermal units) 68.0% of the time until December 28.

On December 20, natural gas January futures fell 3.8% to $3.583 per MMBtu. Early in January, the weather might be warmer than normal. The weather might drag natural gas prices despite a 141 Bcf  (billion cubic feet) withdrawal in inventories, according to the EIA data on December 20. The draw was also more than the market’s expectations.

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) fell 20.6%. Natural gas prices fell 13.1% during the same period.

Natural gas–weighted stocks Antero Resources (AR), Range Resources (RRC), Gulfport Energy (GPOR), and Chesapeake Energy (CHK) have fallen 19.8%, 20%, 26.4%, and 28.7%, respectively, in the trailing week. These stocks underperformed other natural gas–weighted stocks in the trailing week.

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