Natural Gas Futures Spread Is Showing Interesting Divergence

Will Natural Gas Stay above $3? (Continued from Prior Part) ## Futures spread On January 8, the natural gas futures for February 2019 closed at a discount of ~$0.07 to the February 2020 futures. On December 31, the futures spread was at a discount of $0.06. Between December 31 and January 8, the natural gas February futures rose 0.9%. ## Divergence 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 discount expanded. However, natural gas prices rose nearly one percentage point. Usually, the expansion in the discount will be followed by a retreat in prices. The gain in prices could be because of the expectation of colder weather later this month, which we discussed in part one. In the previous part, we discussed that the negative difference between natural gas inventories and their five-year average contracted, a factor that might have pushed the discount higher. ## Energy stocks The natural gas February futures rose 0.9% in the trailing week. During this period, natural-gas-weighted stocks Range Resources (RRC), Chesapeake Energy (CHK), Gulfport Energy (GPOR), and Southwestern Energy (SWN) rose 14.9%, 16.7%, 17.1%, and 20.5%, respectively, and outperformed their peers. ## Forward curve As of January 8, the natural gas futures contracts for delivery between February and May 2019 were priced in descending order, which is a positive 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). Browse this series on Market Realist: * Part 1 - Will Natural Gas Stay above $3? * Part 2 - Steady Natural Gas Rig Count Might Be Trouble for Prices * Part 3 - Why EIA Data Might Not Satisfy Natural Gas Bulls