Futures Spread: Natural Gas’s Bearish Sentiments Decline

Futures spread

On February 26, the natural gas futures for April 2019 closed at a discount of ~$0.15 to the April 2020 futures. On February 19, the futures spread was at a discount of $0.24. On February 19–26, the natural gas April futures rose 3.7%.

Futures Spread: Natural Gas’s Bearish Sentiments Decline

Bearish sentiments decline

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’s discount contracted and natural gas prices rose by nearly four percentage points. The forecast for colder weather might have dragged the spread’s discount and supported prices. With a possible expansion in the negative difference between natural gas inventories and their five-year average, the spread’s discount might contract more this week.

Energy stocks

The natural gas April futures rose 3.7% in the trailing week. During this period, natural gas–weighted stocks Southwestern Energy (SWN), EQT (EQT), Cabot Oil & Gas (COG), and Gulfport Energy (GPOR) returned 4.1%, 0.4%, -0.3%, and -0.5%, respectively, and outperformed their peers. The remaining natural gas–weighted stocks ended in the red.

Forward curve

As of February 27, the natural gas futures contracts for delivery between April and August were priced in ascending order, which is a negative 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).