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Futures Spread: Bearish Sentiments Rise for Natural Gas

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Dec. 4 2020, Updated 10:53 a.m. ET

Futures spread

On January 23, the natural gas futures for March 2019 closed at a discount of ~$0.01 to the March 2020 futures. On January 16, the futures spread was at a premium of $0.25. On January 16–23, the natural gas March futures fell 7.1%.

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Changing sentiments

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 trailing week, the futures spread shifted from a premium to a small discount. Natural gas prices fell by just over seven percentage points. The weather forecast this week might be behind the turnaround in the spread and prices. In the previous part, we discussed that the negative difference between natural gas inventories and their five-year average contracted, which might have pushed spread’s premium to a discount.

Energy stocks

The natural gas February futures fell 7.1% in the trailing week. During this period, natural gas–weighted stocks Southwestern Energy (SWN), Chesapeake Energy (CHK), Antero Resources (AR), and Range Resources (RRC) fell 4.1%, 5.6%, 6.2%, and 9.6%, respectively, and underperformed their peers.

Forward curve

As of January 23, the natural gas futures contracts for delivery between February and May 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).

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