Gas Traders Are Giving Up on U.S. Winter Before It’s Begun

  • ‘Widow maker’ spread touched a record low in trading Friday
  • Forecasters warn against assuming winter will be warm

An American flag flies at a gas refinery in Kentucky.

Photographer: Luke Sharrett/Bloomberg

Natural gas bears wagering on a no-show U.S. winter may be in for a frosty surprise.

Gas for delivery next March traded at the lowest premium on record to the April 2017 contract Friday, signaling that traders see little risk of another Polar Vortex in the months ahead.

Autumn warmth has spooked the gas market, pushing prices to the biggest weekly drop since January on concern that a mild winter will leave the market struggling to absorb a glut of the heating fuel. A bad weather bet can have dire consequences for traders: A wrong-way wager on the March-April spread contributed to the collapse of hedge fund Amaranth Advisors in 2006.

“It is really ridiculous,” said Teri Viswanath, managing director for natural gas at PIRA Energy Group. Gas prices have “just fallen out of bed in the last week and half. Someone, about a week ago, decided to cancel winter.”

Meteorologists caution that the moderate temperatures may not linger. MDA Weather Services’ official forecast calls for cold weather to return to the U.S. East in January and February, said Steve Silver, a meteorologist with the company in Gaithersburg, Maryland.

“It is too early to be writing off the winter season as a whole,” Silver said.

Heating Needs

Gas traders won’t even have the longer-term weather forecasts that include December for about another two weeks. Those outlooks have a more accurate read on whether frigid conditions will arrive or not, Viswanath said.

About half of all U.S. households use gas for heating, and consumers may spend 22 percent more for the fuel this winter compared with a year ago, U.S. Energy Information Administration data show. The period from December to February is when the bulk of gas is burned in the U.S.

The warm weather has also served to mask a drop in gas output from shale basins, said Phil Flynn, senior market analyst at Price Futures Group in Chicago. Supplies may become constrained if this winter is colder than normal, he said.

“Production is declining because of low prices, and the market could be getting complacent about supplies,” Flynn said. “If we get a very cold winter, we’re going to need more production.”

— With assistance by Christine Buurma

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