Natural gas soared the most in eight years Wednesday as forecasts for lingering U.S. cold spurred concern that supplies may not be adequate to meet winter demand. And oil prices also rose, ending their longest string of declines as signals arise that OPEC and allied producers are considering production cuts.
Gas for December delivery rose 18 percent to settle at $4.837 per 1 million British thermal unit, the highest since the "polar vortex" of early 2014 that spread an arctic chill to the Midwest and East. The volume of trading on the New York Mercantile Exchange was about three times the 100-day average.
The premium for March 2019 gas over the April contract jumped as high as $1.745, the widest in data going back to 2015. The March-April spread, dubbed the "widowmaker" for its volatility, is an indicator of how precarious supplies may be at the tail end of winter.
Prices have been driven by "a sharp cold revision in the winter weather outlook," said Devin McDermott, a commodities strategist at Morgan Stanley. "We see modest downside from here assuming current weather forecasts, but a very wide range of potential short-term prices."
It was only on Tuesday that that gas exceeded the $4 mark for the first time in four years. The fuel surged this month over concern that stockpiles, at a 15-year seasonal low, won't be enough to help meet winter heating needs, even as production hovers near a record. In North America, gas stowed in underground aquifers and salt caverns in summer months is used to supplement supplies pumped from wells during winter.
Domestic and foreign demand for American gas has climbed to all-time highs. Cheniere Energy Inc. said Wednesday that it started producing liquefied natural gas at its new $15 billion Corpus Christi export terminal in Texas, the third such plant to begin operating in the continental U.S.
Gas also is climbing after turmoil in international crude markets, where U.S. benchmark prices advanced Wednesday after tumbling 7.1 percent a day earlier.
Despite the autumn chill, the magnitude of the latest rally suggests traders aren't just reacting to weather forecasts and supply forecasts, according to Mizuho Securities USA LLC. While money managers are net-long in gas contracts, short positions rose as recently as last week, government data show.
Wednesday's jump "has no basis in market fundamentals," said Bob Yawger, director of the futures division at Mizuho. "It is getting cold, it might snow" and storage is lower than normal, "but that is not why we are 12 percent to 15 percent higher on the day."
The ProShares UltraShort Bloomberg Natural Gas ETF fell as much as 40 percent Wednesday, the most on record, while VelocityShares Daily 3x Long Natural Gas ETN soared as much as 64 percent.
Cold conditions are stoking concern that U.S. production may be interrupted by the freezing of wellheads. "We may be seeing the first freeze-offs of the winter," market data and analysis company Genscape Inc. said in a report Wednesday.
Crude-oil futures in New York climbed 1 percent on Wednesday, breaking a 12-day slump. OPEC and its partners are said to be discussing a deeper-than-anticipated output cut. Meanwhile, cartel President Suhail Al Mazrouei said Wednesday that supplies will be curtailed as needed to balance the market.
"A lot of folks threw in the towel and got as bearish as can be so now it was ripe for us to at least attempt to move back higher," said John Kilduff, a partner at New York-based hedge fund Again Capital LLC. Signals of impending supply cuts "helped stock the bullish spirits back in here for the first time in a while."
Crude in the U.S. dipped below $55 a barrel this week for the first time in a year as fears of a glut were renewed, with domestic production at record-highs, rising OPEC output and waivers intended to ease the impact of sanctions against Iran. Inventories in industrialized nations have expanded for four-straight months and are set to continue rising, according to the International Energy Agency.
West Texas Intermediate for December delivery rose 56 cents to close at $56.25 a barrel on the New York Mercantile Exchange. The contract sank 7.1 percent on Tuesday, the biggest one-day decline in more than three years. Total volume traded was about 58 percent above 100-day average.
In terms of technical indicators, West Texas Intermediate has remained below its 200-day moving average since late October. The U.S. benchmark's 50-day moving average crossed below its 100-day moving average earlier this week, another bearish signal.
Brent for January settlement gained 65 cents to settle at $66.12 on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a $9.68 premium to West Texas Intermediate for the same month.
Producers need to cut about 1 million barrels a day from October production levels, Saudi Energy Minister Khalid Al-Falih said Monday in Abu Dhabi. The kingdom will reduce shipments by about half that amount next month.
Information for this article was contributed by Joe Carroll, Mathew Carr, Ryan Collins, Naureen S. Malik, David Marino, Amanda Jordan, Alex Nussbaum and Samuel Robinson of Bloomberg News.
Business on 11/15/2018