Natural Gas Futures Soar 22% on Unexpected Storage Draw

Strategic Insights -

A surprise 49 billion cubic foot draw in natural gas storage reported by the Energy Information Administration (EIA) sent natural gas futures prices skyrocketing on the New York Mercantile Exchange (Nymex). Expiring December futures reached as high as $8.15 per million British thermal units, a significant increase from the morning low of $6.66/MMBtu. Traders and analysts attributed the extreme price movement to a short squeeze, driven by the combination of futures expiration, the EIA report, and an upcoming four-day break for the Thanksgiving holiday.

Key Takeaways:

  • Natural gas futures prices soared 22% on the back of a surprise 49 billion cubic foot draw in gas storage reported by the EIA.
  • Expiring December futures reached as high as $8.15 per million British thermal units, up from a morning low of $6.66/MMBtu.
  • Traders and analysts attributed the extreme price movement to a short squeeze, driven by the combination of futures expiration, the EIA report, and an upcoming four-day break for the Thanksgiving holiday.
  • Andy Weissman, chairman of investment firm Energy Ventures Group, described the late afternoon spike as trading-driven and blamed short squeeze.
  • The recommendation to go long February and short January futures may have led some players to make unhedged short bets on January gas, contributing to the large rise in January futures.

Statistics:

  • Natural gas futures prices increased by 22% on the day.
  • Expiring December futures reached a high of $8.15 per million British thermal units.
  • Morning low for December futures was $6.66/MMBtu.
  • The EIA reported a 49 billion cubic foot draw in gas storage.
  • The recommended strategy to go long February and short January futures may have contributed to the large rise in January futures.
  • Cold weather is expected to remain a key driver of energy demand over the near term.

Sources:

  • ODJ via COMTEX (http://www.comtexnews.com)
  • Dow Jones
  • Energy Information Administration (EIA)
  • Goldman Sachs