uploads/2019/05/image005-11.png

Where Natural Gas Prices Could Close in the Next Week

By

Updated

Natural gas’s implied volatility

On May 23, natural gas’s implied volatility was 24.7%, ~9.3% higher than its 15-day moving average. Its implied volatility has risen ~11.1% in the trailing week, while active futures have fallen 2.3%.

Since February, natural gas’s implied volatility and futures prices have been diverging.

Article continues below advertisement

Price forecast

Based on natural gas’s implied volatility of 24.7% and assuming a normal distribution of prices, natural gas futures are expected to close between $2.50 and $2.65 per MMBtu (million British thermal units) 68.0% of the time until May 31. On May 23, natural gas June futures rose 1.4% to $2.578 per MMBtu.

Impact on ETFs, stocks, and the broader market

These price limits could be important for ETFs that follow natural gas futures. Last week, the ProShares Ultra Bloomberg Natural Gas ETF (BOIL) fell 6.1%, while the United States Natural Gas ETF (UNG) fell 3%. These ETFs invest in natural gas futures. If natural gas rises to $2.65, UNG and BOIL will likely benefit.

Similarly, 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. Broader market indexes such as the S&P 500 Index (SPY) and the Dow Jones Industrial Average (DIA) can also be affected by changes in energy commodities.

Advertisement

More From Market Realist