U.S. natgas volatility hits record as global prices skyrocket
October 6 (Reuters) – Volatility in U.S. natural gas futures hit an all-time high on Tuesday following an energy crisis in major global markets that pushed prices up globally.
Natural gas prices are at record highs in Europe and Asia, as major markets like China struggle to find enough fuel to meet demand which rebounded faster than expected after the economic downturn. coronavirus.
In Europe, prices this year have climbed more than 500%, fearing that current low storage levels may be insufficient for the winter.
This trickled down to US natural gas futures, which recently closed at a 12-year high of $ 6.31 per million British thermal units (mmBtu).
Although this is still far from the prices in Europe and Asia where natural gas is more than five times more expensive, the market has become increasingly volatile as competition for limited exports of liquefied natural gas (LNG). of the United States is increasing.
In the United States, implied volatility – a measure of expected fluctuations in the market – hit an all-time high of 122.5% on Tuesday, beating the previous record of 117.5% reached in November 2018.
Part of the reason for these wild moves is that commodity trading companies, hedge funds and other large investors in the market find themselves exposed to unexpected price increases. Companies that bet in the wrong direction in the markets are sometimes forced to change positions quickly to cover their losses, which further adds to the volatility. Read more
There have been no recent reports of hedge fund defaults, but Statar, which invests in gas, is said to have lost about $ 130 million. In contrast, commodities giant Andurand posted strong returns due to rising prices.
Competition between Europe and Asia for limited shipments of LNG and other energy supplies has led manufacturers to scale back operations in Europe and sparked energy crises in China. Global gas prices have hit record highs of around $ 40 per mmBtu in Europe and $ 35 in Asia.
The last time volatility hit such an aggressive peak in November 2018, the volume of gas traded on the New York Mercantile Exchange (NYMEX) hit a record 1.6 million contracts.
As of Tuesday, volume on NYMEX held around 500,000 contracts, slightly more than in the past 30 days but only the most in a day since last week.
However, volumes in the US Natural Gas Fund, an exchange-traded fund designed to track gas prices, climbed to more than 30.2 million shares on September 28, its largest daily volume since reaching a record 43.1 million shares in November 2018.
Analysts don’t expect US prices to reach high levels in Europe or Asia because the US is expected to have enough gas in stock for the winter heating season and because the export factories of American LNG was already producing all the supercooled gas they could.
The United States only has the capacity to transform about 10.5 billion cubic feet per day (bcfd) of gas into LNG, or about 13% of what the country consumes nationally.
Global markets will have to wait until later this year to get more from the United States, when the sixth liquefaction train at Sabine Pass from Cheniere Energy Inc (LNG.A) and Calcasieu Pass from Venture Global LNG in Louisiana are expected to start producing gas. LNG in test mode. .
Reporting by Scott DiSavino; Editing by Kirsten Donovan
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