U.S. natgas price collapse cut 2023 widow maker premium to record low (updated)

Value Exchange International

03/01/2023 16:45

(Adds percent change of Tuesday's price drop and latest prices)
       Jan 3 (Reuters) - U.S. natural gas futures  NGc1 
dropped over 10% to a 10-month low on Tuesday, cutting the
March-April spread to a record low as forecasts for mild weather
and low heating demand in January force some in the market to
give up on hopes for extreme cold in coming weeks.
    The gas industry calls the March-April spread the "widow
maker" because rapid price moves resulting from changing weather
forecasts have knocked some speculators out of business,
including the Amaranth hedge fund, which lost over $6 billion on
gas futures in 2006.
    The premium of futures for March over April  NGH23-J23  fell
54% to a record low of nine cents per million British thermal
units (mmBtu) on Tuesday, according to data provider Refinitiv.
    That was a massive narrowing of the spread, which hit a
record $2.13 per mmBtu in May 2022 as demand for U.S. liquefied
natural gas (LNG) exports soared after Russia cut most gas
exports to Europe after the European Union sanctioned Moscow for
the war in Ukraine.
    The market uses the March-April spread to bet on the winter
heating season when demand for gas peaks.
    March is the last month of the winter season, while April is
the first month of the summer season when utilities inject gas
into storage for use during the winter.
    The price spread between the March and April contracts is
usually the widest of any monthly futures. A narrowing of the
spread usually means the market has given up on expectations for
a cold winter, while a widening of the spread usually means the
market expects a cold winter.
    In addition to the narrowing March-April spread, the premium
of futures for February over March 2023  NGG23-H23  fell 32% to
25 cents per mmBtu, its lowest since August 2021.
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UPDATE 1-U.S. natgas pares gains, still at 7-year high as global
prices soar     urn:newsml:reuters.com:*:nL1N2QU14C
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 (Reporting by Scott DiSavino; Editing by Chizu Nomiyama)
 ((scott.disavino@thomsonreuters.com; +1 332 219 1922; Reuters
Messaging: scott.disavino.thomsonreuters.com@reuters.net))
 
((For Refinitiv, formerly known as Thomson Reuters Supply Chain & Commodities Research (SC&CR), see: cpurl://apps.cp./cms/?pageid=usa-gas))