(Bloomberg) -- The U.S. natural gas market hasn't been this volatile since Bill Clinton was president a generation ago.
Gas futures have been on a roller coaster in recent days, surging the most on record a week ago amid an apparent short squeeze and then plunging 11% in New York on Thursday. One measure of volatility is at the highest since early 1996.
Traders, regulators and elected officials are closely watching a winter storm that is blanketing much of the central U.S. in ice, snow and sub-freezing temperatures. Blackouts are expanding in Texas, where anxiety runs high about the potential for gas wells to freeze and power plants to falter.
“Because of the uncertainty we are seeing around production freeze offs in Texas, you have this big uncertainty regarding short-term supply that is helping drive some of the volatility,” said Eli Rubin, senior energy analyst, EBW AnalyticsGroup.
Gas for March delivery settled 61.3 cents lower on Thursday at $4.888 per million British thermal units, wiping out most of the previous session's 16% advance. Texans are on edge over the prospect of repeating last year's disastrous grid failure that killed more than 200 people and paralyzed the state.
Some natural gas wells have frozen in places like Texas and neighboring Oklahoma, shutting about 5% of overall domestic output during the peak demand season for the furnace and power-plant fuel, according to Jade Patterson, an analyst at BloombergNEF.
“With last year in mind, traders were viewing it through a worst possible scenario type situation and you can't blame them based on how bad it was last year,” said Bob Yawger, head of the futures division at Mizuho Securities USA. “It's not perfect but it's definitely not the catastrophic event it was last year.”
Fuel Stockpiles
The interruptions will take as long as five days to restore once temperatures moderate, BNEF's Patterson said.
Meanwhile, a key government tally of gas inventories showed the largest withdrawal since the February 2021 catastrophe. Stockpiles shrank by 268 billion cubic feet last week, less than most analysts were forecasting. Still, stored supplies remain 15% below the year-earlier level.
The March-April spread for natural gas, known as the widowmaker due to its volatility, reversed yesterday's gains and settled at 16.8 cents after surging to as much as 55 cents per million British thermal units Wednesday, the highest in two months.
“The storage number missing estimates puts pressure on the spread, but I don't think we are going to go back to April trading over March,” said Yawger. “The market is going to step back here and see what happens with this storm. It's going to be a big storage draw next week, which should really move the widowmaker away from contango.”
©2022 Bloomberg L.P.
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.
