* Traders say short squeeze suspected in late-day flurry
* Second-month contract rose 6%
* Midday changes to cold weather forecasts added to rally
By Scott DiSavino
Jan 27 (Reuters) - U.S. natural gas futures soared over 70% in the last half hour of trading on Thursday,
in a late flurry of buying that coincided with the imminent expiration of the February contract at the end of
the session.
The contract ultimately ended up 47% in its biggest daily percentage gain on record - but on total volume
of just about 7,000 contracts, far below the next-month contract that rose a more typical 6.1% on about
156,000 contracts traded around the time the market closed.
On average, about 336,000 futures contracts have traded on a daily basis on the New York Mercantile
Exchange (NYMEX) this week.
Traders cited short-covering after a larger-than-usual weekly storage draw and forecasts for
colder-than-normal weather to continue through mid-February as reasons for the late-day price spike.
"Most folks are not playing in that contract ... because of the craziness that goes on when these
contracts go to expiration," said John Kilduff, partner at Again Capital LLC in New York. "There is no doubt
that people have gotten caught short."
On their last day as the front-month, gas futures for February delivery rose $1.988, or 46.5%, to
settle at $6.265 per million British thermal units, the highest close since October 2021.
Futures contracts expire on a monthly basis, and the holders of that contract are required to take
delivery of the underlying commodity, be it natural gas, oil or something else. Often, volumes decline in the
expiring contract, as people close out positions in advance to avoid taking delivery and unexpected
volatility.
"That is why the clearinghouses usually chase those of us who don't do physical trade out of the market
long before the expiration," Kilduff said.
The flurry of action suggested an attempt by traders to take advantage of thin volumes rather than a
changed assessment of market fundamentals.
"Short sellers may have gotten squeezed out ahead of February expiration," said Edward Moya, senior market
analyst at OANDA. "Many hedge funds were betting natural gas would go up as frigid weather sent demand
soaring, but money managers were short."
Officials at the NYMEX were not immediately available for comment.
Traders said the price increase came after the latest midday weather forecast called for even colder
weather over the next two weeks than was previously expected.
"Near-term weather models were revised significantly colder," said John Abeln, senior analyst, natural gas
research at Refinitiv. "The prospect of a much-colder February and very low volume in the last day of the
February contract trading were perfect ingredients for explosive volatility."
In the spot market, frigid weather and high heating demand over the past week or so in the U.S. Northeast
have kept next-day power and gas prices in New York and New England
at or near their highest levels since January 2018.
"The market finally woke up to the fact that last week was the largest natural gas draw of the year and
weather this week points to another large draw in the report next Thursday," said one energy trader who asked
to remain anonymous.
The U.S. Energy Information Administration (EIA) said utilities pulled a massive 219 billion cubic feet
(bcf) of gas from storage during the cold week ended Jan. 21, the biggest weekly withdrawal since last year's
February freeze cut gas supplies by freezing wells and pipes in Texas and other central states.
Week ended Week ended Year ago Five-year
Jan. 21 Jan. 14 Jan. 21 average
(Actual) (Actual) Jan. 21
U.S. weekly natgas storage change (bcf): -219 -206 -137 -161
U.S. total natgas in storage (bcf): 2,591 2,810 2,899 2,616
U.S. total storage versus 5-year average -1.0% +1.2%
Global Gas Benchmark Futures ($ per mmBtu) Current Day Prior Day This Month Prior Year Five Year
Last Year Average Average
2021 (2017-2021)
Henry Hub 4.37 4.28 2.65 3.73 2.89
Title Transfer Facility (TTF) 29.97 30.08 7.27 16.01 7.47
Japan Korea Marker (JKM) 25.83 26.01 13.33 18.00 8.95
Refinitiv Heating (HDD), Cooling (CDD) and Total (TDD) Degree Days
Two-Week Total Forecast Current Day Prior Day Prior Year 10-Year 30-Year
Norm Norm
U.S. GFS HDDs 496 493 456 429 429
U.S. GFS CDDs 1 1 3 4 4
U.S. GFS TDDs 497 494 459 433 433
Refinitiv U.S. Weekly GFS Supply and Demand Forecasts
Prior Week Current Week Next Week This Week Five-Year
Last Year Average For
Month
U.S. Supply (bcfd)
U.S. Lower 48 Dry Production 93.9 93.6 94.0 91.3 84.0
U.S. Imports from Canada 9.3 9.4 8.9 9.8 9.2
U.S. LNG Imports 0.1 0.2 0.1 0.6 0.4
Total U.S. Supply 103.3 103.3 103.0 101.7 93.6
U.S. Demand (bcfd)
U.S. Exports to Canada 2.5 2.5 2.5 2.5 2.8
U.S. Exports to Mexico 5.7 5.8 5.5 6.1 4.9
U.S. LNG Exports 12.9 12.7 12.9 10.7 5.2
U.S. Commercial 19.1 20.7 19.2 18.5 16.6
U.S. Residential 32.5 35.6 32.7 31.7 28.8
U.S. Power Plant 28.7 32.4 28.4 28.2 26.6
U.S. Industrial 25.8 26.6 25.9 25.5 25.0
U.S. Plant Fuel 4.6 4.6 4.6 4.6 4.7
U.S. Pipe Distribution 3.0 3.3 3.0 3.3 2.9
U.S. Vehicle Fuel 0.1 0.1 0.1 0.1 0.1
Total U.S. Consumption 113.9 123.4 114.1 111.9 104.7
Total U.S. Demand 134.9 144.3 134.9 131.2 117.6
U.S. weekly power generation percent by fuel - EIA
Week ended Week ended Week ended Week ended Week ended
Jan 28 Jan 21 Jan 7 Jan 7 Dec 31
Wind 9 11 10 12 12
Solar 2 2 2 2 2
Hydro 7 7 7 7 8
Other 2 2 2 2 2
Petroleum 1 1 1 1 1
Natural Gas 35 33 34 34 33
Coal 26 25 24 21 20
Nuclear 19 19 20 20 23
SNL U.S. Natural Gas Next-Day Prices ($ per mmBtu)
Hub Current Day Prior Day
Henry Hub 4.43 4.11
Transco Z6 New York 11.24 14.66
PG&E Citygate 4.94 4.53
Dominion South 4.02 3.79
Chicago Citygate 4.02 3.85
Algonquin Citygate 21.20 22.25
SoCal Citygate 5.10 4.34
Waha Hub 4.02 3.68
AECO 3.40 3.04
SNL U.S. Power Next-Day Prices ($ per megawatt-hour)
Hub Current Day
New England 178.00 186.75
PJM West 39.50 37.00
Ercot North 39.75 40.00
Mid C 40.75 36.31
Palo Verde 45.25 27.75
SP-15 47.00 41.50
(Reporting by Scott DiSavino in New York and Shariq Khan in Bengaluru; Editing by Mark Porter, Edmund Blair
and Jonathan Oatis)
U.S. natgas soars 47% on scant volume as contract expires
January 27, 2022 at 02:44 pm EST
Share
Share
