U.S. natural gas futures were down for the fourth session on Thursday, quickly falling into a bear market as bullish bets evaporate in warmer weather. Sentiment in the US natgas markets looks a lot like 2018/19 when the so-called âwidowerâ spread widened and then quickly tightened, leading to the explosion of at least one commodity firm on a spread trade in the wrong direction. There is also extensive trade between the EU and US natgas that left major commodity houses faltering before the northern hemisphere winter. The massive reversal of the weather forecast in the United States has crushed some of the largest commodity traders in the world, mainly due to the spread of ‘widowers’. The spread between the March and April Henry Hub contracts, which hit $ 1.90 per million UK thermal units in early October as traders bet on tight stocks, has has dipped to 23 cents now, a complete slump as the outlook called for mild weather.
There is a reason why this spread trade is called a widower, given the weather dependent volatility.
âIt looks like we’re going to have a lot of surpluses right now in the winter and even in the spring,â Dennis Kissler, senior vice president of Bok Financial Securities, told Bloomberg.
Thus, while US gas stocks are in line with averages, chaos reigns in the energy markets across the Atlantic. EU gas stocks are well below trend, and traders who bought US gas and sold EU gas were royally blasted this fall (in an arbitrage trade that has gone horribly wrong turned).
But the “widower” time interval may have a competitor for this title …
In October, the main commodities offices were hammered monkey with margin calls coming from trade in reverse spreads (or arbitrage) that have gone wrong between the American and European natgas markets. Glencore, Gunvor, Trafigura and Vitol are among the commodity companies facing massive margin calls on their wrong track spread trades.
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For years, EU (blue) and US (black) natgas prices have traded within a well-defined range. However, this year is an anomaly because an energy crisis and colder weather sent the Dutch gas of the coming month, the EU benchmark, at nearly 100 euros per megawatt hour. In comparison, the US natgas fell into a bear market on warmer weather and sufficient supplies.
The spread of fenestrants is not the only one in extremes. The gap between EU and US gas has collapsed due to the worsening energy crisis and the cold.
La Nina’s weather conditions around the world have made weather conditions volatile in some areas, and some commodity bureaus that hedge in the medium to long term have been caught out.
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