What's Driving the Rise in Natural Gas Prices?
Correlation analysis of natural gas–weighted stocks
Stocks with a production mix of at least 80% in natural gas (UNG)(UGAZ) had a stronger correlation to crude oil than to natural gas in the last three months. EXCO Resources (XCO) operates with a production mix of 88.7% in natural gas. In the last three months, its moves correlated 52% with crude oil and 15% with natural gas.
Rice Energy (RICE) operates with a 99.3% production mix in natural gas. In the same timeframe, its moves correlated 51.1% with crude oil and 40.2% with natural gas.
This illustrates the Market’s sentiment toward the fall in crude oil prices. Investors turn bearish even toward stocks with a high production mix of natural gas if crude oil prices fall.
Cabot Oil & Gas (COG) had a significantly higher correlation to natural gas than to crude oil between January 21, 2016, and April 21 24, 2016. Cabot Oil & Gas has a production mix of 93% in natural gas. However, in the past year, Cabot Oil & Gas was correlated more with crude oil than with natural gas. This indicates that a recovery in natural gas prices alone may not be enough to push these stocks higher. Support from crude oil prices will likely be needed.
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