US natural gas futures for March slid 11 percent on Monday after hitting a new five-year high earlier on concern that the high prices may push utilities and industrial firms to cut back on gas usage. Front-month natural gas futures on the New York Mercantile Exchange ended 69 cent lower at $5.445 per million British thermal units on the New York Mercantile Exchange.
Volatile trading saw the March contract jump in early morning to $6.49, the highest since late 2008, then fall through most of the session, hitting $5.38 before recovering to end at $5.445 per mmBtu. Analysts and traders said the dramatic slide was likely caused by the market's inability to break the $6.50 technical resistance point. The expiration of the March contract on Wednesday also drove the $1.11 daily price swing, the largest since August 2006, according to Reuters' data. "March has been leading the way while the other (months) have been lagging," said Steve Mosley of the SMC Report. "There's a thought that this is only as good until the weather breaks."
Higher gas prices spurred by the coldest winter in decades have depleted gas in storage and boosted volatility "because no one knows where the price ought to be", said Mosley. "That's a new thing," Mosley said. Suddenly, we are faced with having to struggle to get storage full."
With the gains earlier Monday, the front-month contract was up about 53 percent since the beginning of the year. It is now up about 29 percent. With NYMEX front-month gas was trading at $3 premium per mmBtu over the front-month NYMEX Eastern coal contract, traders predicted utilities will switch from gas to coal. The spread, which reached a four-year high of $3.65 last week, has been over $3 for five days in a row.
"There is a lot of cold coming, but we've seen utilities in the Northeast switching to oil and utilities in the Midwest switching to coal," a trader said. "Even some industrials are slowing their use of gas at these prices. This is a big collapse." MDA Weather Services forecast intense cold in the US North-Central region over the next five days and another intense cold shot over much of the country over the next six- to 10-days.
The coldest winter in decades has created huge swings in the US gas market already this year, as inventories fall at a record rate. Some analysts expect the nation to finish the winter heating season at the end of March with less than 1 trillion cubic feet of gas in store, which would mark a more than 10-year low for that period. Traders also noted the March-April 2014 spread dropped to 82.5 cents per mmBtu Monday after reaching a life-of-contract high of $1.45 last week, according to Reuters data.
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