U.S. natural gas futures jumped about 8% on Friday as a major winter storm targets the Northeast and on forecasts for much colder weather and higher heating demand in the next two weeks than previously expected, which had also caused prices in the now-expired February contract to soar over 70% late Thursday.
In the last half hour of trading on Thursday, futures for February soared in a late flurry of buying that coincided with the imminent expiration of the contract at the end of the session.
Traders said short-covering after a larger-than-usual weekly storage draw and forecasts for colder-than-normal weather were the primary reasons for Thursday’s late-day price spike.
Analysts at Gelber and Associates said there was talk in the market “that a large producer’s inability to make delivery at Henry Hub forced them to cover short positions and put them on the wrong side of one of the most dramatic price escalations in the market’s history.”
On its first day as the front-month, gas futures for March delivery rose 35.6 cents, or 8.3%, from where the March contract closed on Thursday to settle at $4.639 per million British thermal units (mmBtu) on Friday.
But compared to where the February contract closed when it was the front-month on Thursday, the March contract was down about 26%, which would be the biggest daily percentage decline since December 1995 when it hit a record 31%.
In intraday trade on Thursday, the February contract rose to $7.346 per mmBtu, the highest price for the front-month since November 2008. The contract settled up about 46% at $6.265, its biggest daily percentage gain on record and the highest close for the front-month since October 2021.
Of the 7,182 February contracts traded on the New York Mercantile Exchange (NYMEX) on Thursday, about 2,874 traded during the last 30 minutes before the future expired at 2:30 p.m. EST (1930 GMT), according to data from the NYMEX and Refinitiv. Prices during those 30 minutes averaged $6.04 per mmBtu. At 10,000 mmBtu per contract, the total value of those 2,874 contracts was around $174 million.
For the week, the front-month was up 16%, its biggest weekly percentage gain since August 2020. Last week, the contract fell about 6%.
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.
Analysts forecast the extreme cold would force utilities to keep pulling massive amounts of gas from storage in coming weeks, causing total inventories to fall over 10% below average for this time of year.
In addition to extreme cold, record U.S. liquefied natural gas (LNG) exports were also supporting prices as global LNG buyers look for ways to send more fuel to Western Europe in case Russia invades Ukraine and cuts off gas supplies to the rest of the continent.