Natural gas is worst performer among top commodities on weather

[CHICAGO] US natural gas futures plunged the most in more than a month, making the fuel the worst performer among major commodities, as milder autumn forecasts stoked concern that a warm winter will crush heating demand.

Gas for December delivery settled down 10 per cent, the biggest decline in eight weeks, at US$2.697 per million British thermal units. That's in stark contrast to major commodities including oil, which rose amid optimism over prospects for a Covid-19 vaccine.

Investors have for the past several weeks piled up bullish bets on natural gas on the hopes that a harsh winter would boost demand for heating fuels and help wipe out a supply glut that earlier this year sent prices to the lowest level in decades. Gas surged to a two-year high last month, also buoyed by lower output and record export demand.

But the recent weather has been a disappointment to traders who see fall as a harbinger of winter gas demand. The US is poised to see mild conditions with only a few cool shots through the end of the month, according to the Commodity Weather Group. The number of heating degree days, a measure of weather-driven gas demand factoring in population, is seen at 275, which compares to a 10-year average of 316, the commercial forecaster said in a report.

"The market action in natural gas reminds me that I should not trust long-term weather" forecasts, Phil Flynn, senior market analyst at Price Futures Group, said in a note. "The fundamentals on natural gas look supportive but if we get another warm winter, natural gas may just stay about where it is." US natural gas production has also rebounded from a decline last week, also weighing on prices.

Shares of gas producers retreated, with EQT Corp dropping 3.8 per cent and Antero Resources Corp 1.8 per cent, in sharp contrast to oil producer and refiner stocks, which rallied strongly Monday on oil's gains.

Gas for March delivery closed at a 6.9 cents premium over the April contracts. The closely-watched spread, known as the "widowmaker" because of its volatility, has shrunk by more than 70 per cent this month. The narrowing signals that traders are betting on relatively abundant supplies by the end of the heating season.

BLOOMBERG