U.S. natural gas futures soared over 70% during the last half hour of trade on Thursday and closed up 46% in their highest daily percentage gains on record. The move puzzled a number of market-watchers, who struggled to explain what could have caused such a spike.
The answer lies in the low-volume action because Thursday was the last day of that contract's life - when very few buyers would be willing to take a position as most had already moved on to other contracts. These occurrences are becoming more common, though usually not on the order of what happened Thursday.
Eli Rubin, senior energy analyst at EBW said Thursday's "price action appears suggestive of a large player getting caught short and losing big." He did not hear of any specific firms caught short.On the New York Mercantile Exchange , all natural gas contracts not closed at expiration go to delivery at the Henry Hub natural gas storage facility in Louisiana.
That is a miniscule amount of trading, and the volatility it caused prompted NYMEX to halt trading briefly 12 times through circuit breakers meant to keep markets orderly."Short sellers may have gotten squeezed out ahead of February expiration," said Edward Moya, senior market analyst at OANDA. "Many hedge funds were betting gas would go up as frigid weather sent demand soaring, but money managers were short.
When the contract is about to expire, short sellers can get squeezed into buying gas at any available price to cover their obligations in a very thin market with little gas available - making it risky to remain short on expiration day.On midday Thursday, new weather forecasts projected even colder temperatures than previously expected for the next two weeks - pushing utilities to take more gas from storage, and threatening tighter supply.
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