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Where Natural Gas Could Head Next Week

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Updated

Natural gas’s implied volatility

Yesterday, natural gas’s implied volatility was 28.9%, 4.7% above its 15-day moving average. It has fallen ~10.2% in the last week, while active futures have been almost flat. Since February, natural gas’s prices and implied volatility have been diverging.

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Price forecast

Based on natural gas’s implied volatility of 28.9% and assuming a normal distribution of prices, natural gas futures could close between $2.26 and $2.42 per MMBtu (million British thermal units) 68.0% of the time until June 20. Yesterday, natural gas July futures fell 2.6% to $2.325 per MMBtu.

Impact on ETFs, stocks, and the broader market

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 fallen 0.1%, while the United States Natural Gas ETF (UNG) has fallen 0.2%. These ETFs invest in natural gas futures. If natural gas falls to $2.26, a new multiyear low, UNG and BOIL could be impacted.

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 (SPY) and the Dow Jones Industrial Average (DIA) can also be impacted by changes in energy commodities.

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