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Where Natural Gas Could Head Next Week

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Natural gas’s implied volatility

Yesterday, natural gas’s implied volatility was 22.2%, ~10.5% below its 15-day moving average. It has stayed almost the same over the last week. Although natural gas’s implied volatility and natural gas April futures had moved in tandem since last June, April futures have risen 3.2% in the last week.

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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 $2.73 and $2.89 per MMBtu (million British thermal units) 68.0% of the time until March 8. Yesterday, natural gas April futures rose 0.5% to $2.81 per MMBtu. Inventory data and forecasts of slightly colder weather may have supported natural gas prices.

Impact on ETFs and stocks

These price limits could be important for ETFs that follow natural gas futures. In the last week, the ProShares Ultra Bloomberg Natural Gas ETF (BOIL) has risen 5%.

Natural gas–weighted stocks such as Southwestern Energy (SWN), Chesapeake Energy (CHK), Range Resources (RRC), and Antero Resources (AR) are sensitive to changes in natural gas prices. In the last week, the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) and the Energy Select Sector SPDR ETF (XLE) have fallen 1.9% and 0.5%, respectively. These ETFs contain natural gas producer stocks that could be sensitive to natural gas prices.

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