US natural gas futures fell more than 3 percent on Wednesday to a 17-year low on forecasts for warmer weather that is expected to keep heating demand light for the rest of the winter, likely allowing stockpiles to end the heating season at record highs.
Front-month gas futures on the New York Mercantile Exchange closed down 6.4 cents, or down 3.7 percent, at $1.678 per million British thermal units, putting the front-month into technically oversold territory. Earlier Wednesday, the April front-month fell to a contract low of $1.657, the lowest since March 1999.
The most active options Wednesday were both calls and puts for April 2016, with speculators betting on $1.75, $1.90, 1.95 and $2 calls and $1.50 and $1.75 puts. The widening contango in the NYMEX market this week may have claimed its first victim. Sources familiar with Cogent Energy, a gas-focused hedge fund, said the firm was trying to sell its trading book over the weekend.
The balance of the year on the NYMEX fell to its lowest since 2008 this week, while calendar strips for 2017, 2018, 2019, and 2021 each gained over 5 percent. Short-dated contracts are declining on forecasts for warm weather and weak heating demand for the rest of the winter, while production remained near record highs, leaving storage levels also near all-time highs.
Longer-dated contracts, meanwhile, were rising on expectations for growing power and industrial sector gas usage and rising exports over the next few years, especially liquefied natural gas exports. Heating demand since the start of the industry's November-March winter season was running about 12 percent below normal in the lower 48 US states due to the warming effect of the El Nino weather pattern.
Meteorologists predict the warming trend will continue into March, with heating demand expected to be 26 percent below normal, according to Thomson Reuters Analytics. Rockies Express Pipeline expects its mainline in Monroe County, Ohio, to return to service on Thursday following an interruption that reduced natural gas volumes by about 1 billion cubic feet per day and caused it to declare a force majeure on Tuesday.