Gas is getting hammered with winter weather absent in forecasts

[CHICAGO] US natural gas prices slumped to the lowest in more than two months as the latest forecasts showed few signs of cold weather in the run-up to the key heating season, deepening a rout driven by an exodus of bullish speculators.

Gas for January delivery plunged as much as 7.5 per cent on Monday, the biggest decline among the main-traded commodities on Monday, to US$2.381 per million British thermal units, before trimming some losses at the close.

The market has faced a major sell-off since prices rose to a 21-month high at the end of October, with speculators all but giving up any prospect of a frigid winter. Gas futures have lost almost 30 per cent in the past five weeks, echoing a 2018 bust in prices also led by frustration over the weather. Though liquefied gas exports are near a record high and low oil prices have dented shale production, cold weather will be needed to erode stockpiles of the heating fuel.

Much of the US is poised to see warmer-than-normal conditions at least through Dec 21, according to private forecaster Commodity Weather Group. Longer-term models have also pointed to above-average seasonal temperatures, leading traders to unwind bullish bets.

"Traders are definitely throwing in the towel," according to John Kilduff, a founding partner at Again Capital, who said a drop below US$2 is in the cards.

The March-April gas spread has narrowed to a record low for the 2021 contracts in another sign of how bearish traders have become. The closely watched spread, known as the "widowmaker" because of its volatility, has shrunk by more than 80 per cent over the past month. The narrowing indicates traders are expecting relatively abundant supplies by the end of the heating season.

Gas for January delivery closed down 6.6 per cent at US$2.406 per million Btu, the lowest settlement since the end of September, on the New York Mercantile Exchange. The March contract closed 2 cents above April futures. Shares of gas producers including EQT Corp and Range Resources Corp. also dropped amid broader equity declines.

BLOOMBERG