Missing Polar Vortex Ends Winter's Bull Run for U.K. Natural Gas

  • Volatility is near a three-year high amid abnormal conditions
  • Europe forecast to see warmer-than-normal weather in February

The bears are reclaiming U.K. natural gas.

The power and heating fuel had its biggest weekly drop since 2013, ending a bull run that had boosted prices 43 percent since Dec. 8. That came as the threat of a blast of Arctic air diminished and the end of the heating season draws closer.

The plunge in the European benchmark is the latest move in what’s been a volatile winter for gas. Unexpected cold and abnormally low stockpiles of fuel in storage caused gas to soar from September to January. Now mild weather is causing prices to fall and volatility to rise to near a three-year high.

“In the last weeks the main driver has been the weather forecast, but the gas market is still a big question,” said Fabio Cedronio, a senior gas trader at Repower AG based in Poschiavo, Switzerland. “Winter is not finished yet.”

Temperatures are expected to rise above normal this week and stay above average next week, The Weather Co. said Monday in a report. That’s in stark contrast to earlier this winter, when blizzards, gale force winds and arctic temperatures caused a scramble for energy supplies across Europe.

It also shows the subsiding risk of a polar vortex causing more freezing weather in the second half of February.

Paired with other unusual conditions, including an outage at the U.K.’s largest storage facility that left Britain with less than half the stored fuel it normally has going into heating season and a political battle in the Netherlands over the fate of Europe’s largest gas field, prices have been swinging between extremes.

Rising Volatility

Volatility on front-month gas on the ICE Futures Europe exchange on a roll-adjusted basis reached 55 percent, the highest in six years, in September as the market entered the heating season with low stockpiles. On Monday, 30-day volatility at 54 percent again approached that level. In sentiment surveys conducted by Bloomberg, views from traders and analysts split toward the end of last year after a year and a half of near-consensus bearish views.

Volatility may continue, especially if there’s another cold snap that sets off an even more intense competition for gas amid low levels of stored fuel, BMI Research said in a research note on Feb. 8. 

Benchmark front-month gas in the U.K. fell for a sixth day Monday, its longest such streak since September, after previously rising for five days in a row. It traded at 51.1 pence a therm ($6.41 a million British thermal units) at 12:09 a.m. London time.

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