U.S. natural gas futures continued an epic plunge Monday after weather forecasts show temperatures across the U.S. will be well above seasonal trends through at least the mid-point of December.
Contracts for January stumbled 8% to $3.80 per million British thermal units, the lowest intraday price since late August. Prices have slid upwards of 40% since early October as it first became apparent the U.S. had ample supplies of natgas, and temperature forecasts were beginning to show warmer weather trends.
Bloomberg's two-week outlook shows mean temps across the US-Lower 48 will be well above a 30-year average through Dec. 21. At some points, temperatures could be 10-degrees Fahrenheit over the seasonal averages.
Above-average temperatures forecast for Dec. 11-15, which should curb demand for heating fuels like natural gas pic.twitter.com/v7OmhQ0Vo0— Stephen Stapczynski (@SStapczynski) December 6, 2021
Above-average temperatures mean heating demand for building structures, such as homes and businesses will decline. This is reflected on the US-Lower 48 heating degree day chart below.
Due to warmer weather and the rising supply of natgas from the Marcellus shale region, Morgan Stanley wrote in a note that prices are skewed to the downside. The bank sees natgas prices averaging around $3.75 in 2022.
Another way to view the natgas market is through the so-called 'widowmaker' spread between March and April Henry Hub contracts. In early October, the spread soared to $1.90 per million British thermal units as traders bet on tight inventories and cold temperatures but have since reversed to now 23 cents, a complete collapse as outlooks forecast mild weather.
Across the Atlantic, European natgas markets are the complete opposite as the continent struggles with low supplies and frigid temperatures.