Natural gas’s implied volatility

On February 21, natural gas’s implied volatility was 22.2%, ~18.4% below its 15-day moving average. In the trailing week, natural gas’s implied volatility fell 11.2%. Natural gas April futures rose 4.4% in the same period.

However, since June, these two metrics have been moving in tandem.

Where Natural Gas Prices Could End Up in the Next Week

Natural gas prices and the weather forecast

Based on natural gas’s implied volatility of 22.2% and assuming a normal distribution of prices, natural gas futures are expected to close between $2.65 and $2.80 per MMBtu (million British thermal units) 68.0% of the time until March 1. On February 21, natural gas April futures rose 2.1% to $2.724 per MMBtu. The forecast for colder weather might have been behind the rise in natural gas prices.

Moreover, on February 21, the EIA (U.S. Energy Information Administration) reported a draw of 177 Bcf (billion cubic feet) in natural gas inventories—15 Bcf more than was indicated in the Reuters poll for the week that ended on February 15. With the larger-than-expected draw, the negative difference between natural gas inventories and their five-year average expanded by ~2.5 percentage points, which is a positive development for natural gas prices.

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) rose 8.4%. Natural gas prices rose 4.4% in the same period.

Natural gas–weighted stocks, including Southwestern Energy (SWN), Chesapeake Energy (CHK), Range Resources (RRC), and Antero Resources (AR), are sensitive to changes in natural gas prices.

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