Natural gas’s implied volatility
On January 3, natural gas’s implied volatility was 52.6%, which was ~26.6% below its 15-day moving average. In the trailing week, natural gas’s implied volatility fell 20.5%. Natural gas’s February futures fell 16.9% during the same period. Since June 2018, these two metrics have been moving in tandem.
Natural gas prices and the weather forecast
Based on natural gas’s implied volatility of 52.6% and assuming a normal distribution of prices, natural gas futures are expected to close between $2.75 and $3.14 per MMBtu 68.0% of the time until January 11.
On January 3, natural gas February futures fell 0.4% to $2.945 per MMBtu. However, the weather forecast suggests colder weather after January 11, which might push natural gas to the upper limit of our price forecast. Today, the EIA reported a fall of 20 Bcf (billion cubic feet) in natural gas inventories for the week ended December 28. The fall was 27 Bcf less than Reuters’ analyst 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 29%. Natural gas prices fell 16.9% during the same period.
Natural-gas-weighted stocks Southwestern Energy (SWN), Cabot Oil & Gas (COG), Range Resources Corporation (RRC), and Antero Resources (AR) have fallen 1.1%, 1.6%, 2.4%, and 3.1%, respectively, in the trailing week. These stocks underperformed other natural-gas-weighted stocks in the trailing week.