US natural gas futures were little changed on Thursday on mixed weather forecasts calling for mostly steady heating demand over the next two weeks. Front-month gas futures on the New York Mercantile Exchange closed down 0.3 cents at $2.26 per million British thermal units.
The latest run of the US weather model pointed to slightly warmer but still near-normal temperatures through the US Thanksgiving Day holiday, while the European model forecast the weather would cool a bit but remain at warmer-than-normal during that time. Traders said they were hesitant to push prices much higher or lower until the weather forecasts were more in line. They noted that while the US weather model, which posts results every six hours, was more popular in the United States, the European model, which posts results every 12 hours, has been more accurate in recent months.
Over the past several weeks, hedge funds have built up net short positions on the NYMEX and Intercontinental Exchange to the highest levels in at least five years as they bet prices - already near a three year low - would fall further as producers continue to pump record levels of gas out of the ground and amid forecasts for a warmer-than-normal El Nino winter. The most active options on Thursday were the $2 January and February 2016 puts, the $1.75 December 2015 puts and the $1.25 April 2016 puts.
In addition to the options, the warm weather was also pressuring the winter futures lower. The premium of the March 2016 contract over April 2016 on Wednesday fell to its lowest level in at least seven years. March-April is usually the widest month-to-month spread of the year since it marks the end of the winter heating season and the start of spring, making it widely traded. It is known as the widow-maker because changing weather forecasts can quickly cause it to turn against speculators. Traders however have warned for weeks that futures were vulnerable to a short-covering rally if the weather suddenly turned colder because speculators could quickly exit their big bearish bets.
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