‘Widowmaker’ Natural Gas Trade Collapses on Mild Winter

(Bloomberg) -- A natural gas trade known as the widowmaker is living up to its name once again.

The spread between March and April futures -- essentially a bet on how tight supplies of the fuel will be at end of North American winter -- collapsed to less than zero on Tuesday, the first time it’s done so this early in the heating season since 2015.

It’s a signal that traders are giving up on hopes of a frigid U.S. winter to boost demand and shrink ample supplies from places like Texas and Pennsylvania, as well as backup volumes stowed in underground storage caverns.

“It’s a significant event,” says Gary Cunningham, a director at Stamford, Connecticut-based Tradition Energy. “We may end winter with very strong gas inventories.”

U.S. gas has been whipped by a major sell-off since touching a 21-month high at the end of October as speculators all but abandoned prospects for a harsh winter. Gas futures have lost almost 30% since Oct. 30, echoing a 2018 bust also led by frustration over the weather.

Much of the U.S. is poised to see warmer-than-normal conditions at least through Dec. 22, according to private forecaster Commodity Weather Group. Longer-term models have also pointed to above-average seasonal temperatures, leading traders to unwind bullish bets.

Gas for March delivery fell 0.5% to settle at $2.419 per million British thermal units on the New York Mercantile Exchange. Meanwhile, the April contract rose 0.7% to $2.428. Longer-term gas futures also inched higher as traders priced in the prospect of lower output next year, according to Cunningham.

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