U.S. natural gas futures dropped 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 fell 52% to a record low of 10 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 fell 27% to 27 cents per mmBtu, its lowest since January 2022.