US natural gas futures edged higher on Monday after earlier falling to a fresh all-time low on forecasts for warmer weather and weaker-than-normal heating demand through the middle of December. Front-month gas futures on the New York Mercantile Exchange closed up 2.3 cents, or 1 percent, at $2.235 per million British thermal units. Earlier in the day, the January front-month fell to an all-time contract low of $2.175.
Despite the small gain, the front-month was down for a fifth month in a row at the end of November for the first time since 2011. US gas prices this year are set to register their lowest average price since 1999, marking one of the deepest and most prolonged slumps of any commodity, with a rebound unlikely as record production from shale formations has outstripped even healthy demand.
US gas output in the lower 48 states climbed to an all-time high of 83.9 billion cubic feet per day in September from a revised 83.5 bcfd in August, the US Energy Information Administration said in its monthly 914 production report on Monday. Futures for the winter and all of 2016 have been depressed for much of this year, with production at record levels, storage at record highs and forecasts for a warmer-than-normal winter due to the El Ni?o weather pattern.
In addition to the January future, the February, March and April 2016 contracts all fell to a fresh all-time lows on Monday, The decline in the March contract widened its discount to April to a record low of 2.7 cents. March usually trades at a premium to April. 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.
The premium of the January 2017 future over the January 2016 contract also climbed to its highest level on record at around 64.2 cents. Speculators continue to bet prices could fall further with the $1.50, $1.75, $1.95 January and February puts among the most active options. Traders have warned for weeks that futures were vulnerable to a short-covering rally, however, if the weather suddenly turns cold and speculators quickly exit their big short positions, which have been near a five-year high for weeks.
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