Natural gas futures plunged by 11% in the United States as a result of the shift in weather forecasts. There is concern about tight domestic supplies due to the shortage of heating fuel globally.
The market’s volatility was also amplified by the expiration of the December contract in November. Prices closed 7.5% higher on November 26 as traders hurried to close out bearish positions before the contract expired. On the other hand, January delivery contracts plummeted 62.3 cents at $4.854 per million British thermal units in New York on November 29.
Volatility in gas prices has remained well above the average for the past decade since late summer. This is despite a drop from October’s peak as traders try to determine whether the winter cold will negatively impact inventories.
Natural gas shortages have not yet spread to the U.S.
In Asia and Europe, the late Autumn cold has ignited fears that global gas shortages will be amplified as countries struggle to refill stockpiles. But, so far, there’s little evidence of a comparable crisis forming in the United States, even though shale producers are keeping output under control and the country’s liquefied natural gas exports are at an all-time high. The United States’ gas stocks are only 1.6 percent below usual for this time of year.
The apparent “widowmaker” spread between March and April futures is basically a bet on how short inventories are when winter ends in the northern hemisphere. After widening to $1.909 last month, it fell to 41.5 cents, the narrowest since June.
Forecasts show that mild weather will continue into early winter
According to the Weather Channel, much of the United States will experience milder-than-normal conditions this week, with spikes to around the 50s, anticipated in Minneapolis and Chicago. The western half of the United States can expect above-normal temperatures at least till the middle of December, according to a note by private forecaster Commodity Weather Group.
EBW AnalyticsGroup also stated in a note to clients that particularly mild weather “will decimate physical market demand and intensify downward pressure on Henry Hub spot prices.”
John Kilduff, founding partner at New York hedge fund Again Capital believes that the downward pressure will stay. He added that the beginning of December seems to be a “bust in terms of gas demand.” The fall storage levels, however, have seen an improvement. Kilduff added, “We’re decently supplied now.”