U.S. natural gas futures jumped almost 10% on Monday to a near six-week high on worries that gas production will decline as drillers shut oil wells in shale basins due to the collapse in crude prices to below zero for the first time.
Those oil wells produce a lot of gas. Traders also cited forecasts for cooler weather and higher heating demand next week even as long-term forecasts call for gas use to drop due to coronavirus lockdowns.
After rising for three days, front-month gas futures for May delivery on the New York Mercantile Exchange rose 17.1 cents, or 9.8%, the biggest daily gain since January 2019, to settle at $1.924 per million British thermal units, their highest since March 10.
The contract has surged about 21% over the past three days. U.S. oil futures, meanwhile, plunged over 300% to settle at a record low of minus $37.63 a barrel. The rapid collapse of U.S. oil futures this year - down over 130% - caused crude's premium over gas to turn into a deficit on an energy equivalent basis for the first time ever.
Before the coronavirus started to cut global economic growth and energy demand, gas was trading near its lowest in years as record production and months of mild winter weather allowed utilities to leave more fuel in storage, making shortages and price spikes unlikely.
Analysts expect gas prices at the Henry Hub benchmark in Louisiana in 2020 to fall to their lowest since 1998.
Looking ahead, gas futures for the balance of 2020 and calendar 2021 were trading much higher than the front-month on expectations demand will jump as the economy snaps back once governments loosen travel and work restrictions. Calendar 2021 has traded over 2022 for 30 days and over 2025 for 20 days.
With forward prices rising, speculators last week boosted net long position on the NYMEX and Intercontinental Exchange to the highest since April 2019. In the prior week ended April 7, speculative positions switched from net short to net long for the first time since May 2019.
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