US natgas price slump forces March-April widow maker' Futures into Contango
The price of U.S. Natural Gas Futures for April 2020 traded higher on Tuesday than it did for March 2025, a move that some analysts say signals the market is already giving up expectations for much higher prices in the winter.
The April futures traded at a premium of up to 0.5 cents for every million British thermal units.
The winter storage withdrawal period runs from November to March. April is the start of the summer storage injection period, which runs from April to October. Gas is primarily used for winter heating, so traders say summer prices shouldn't be higher than winter.
Five days after Thanksgiving, summer is trading at a higher premium than winter. Bob Yawger said that in a rational world it would be logical to assume summer will never trade above winter.
In recent years, this was the first time that the normal backwardation of the March contract being higher priced than the April contract had been replaced by an unusual contango.
The March-April 2020 spread was not in contango until December 13. According to LSEG seasonality data, this compares to Jan. 25, for the spread March-April 20,23, and never for the spread March-April 2020.
The March-April spread is known as the "widowmaker" by the industry because it has forced many speculators to go out of business. This includes the Amaranth hedge funds, which lost over $6 billion in 2006 due to rapid price changes based on changing weather forecasts. (Reporting and editing by Chris Reese, Sandra Maler, and Scott DiSavino)
(source: Reuters)
