Futures Spread: Shifting Sentiments for Natural Gas Prices

Futures spread

On January 15, the natural gas futures for February 2019 closed at a premium of ~$0.4 to the February 2020 futures. On January 8, the futures spread was at a discount of $0.06. On January 8–15, the natural gas February futures rose 18%.

Futures Spread: Shifting Sentiments for Natural Gas Prices

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 discount to a premium. Natural gas prices rose by 18 percentage points. The cold weather forecast early 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 limited the spread premium’s upside.

Energy stocks

The natural gas February futures rose 18% in the trailing week. During this period, natural gas–weighted stocks Range Resources (RRC), Southwestern Energy (SWN), Gulfport Energy (GPOR), and Chesapeake Energy (CHK) rose 6.7%, 7.3%, 12.6%, and 16.3%, respectively, and outperformed their peers.

Forward curve

As of January 15, 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).