U.S. natural gas futures eased on early Wednesday on forecasts for well above normal temperatures over the next two weeks, expected to keep heating demand lower than normal.
On its last day as the front-month, the November gas future on the New York Mercantile Exchange fell 3.6 cents, or 1.72 percent, to $2.056 per million British thermal units at 10:02 a.m. EDT (1402 GMT).
The December contract, which will be the front month on Thursday, was off about six cents to $2.302. “With a very weak November contract heading into the history books after today’s session the market could then set-up for an overdue bout of short covering in the coming week or so as the overall market remains extremely oversold,” Dominick Chirichella, an analyst at Energy Management Institute, said in a note.
The front-month was on track to remain in oversold territory on the Relative Strength Index (RSI) for a fourth day in a row, the longest since December 2014. The market however remains bearish with gas inventories expected to reach a record high around 4 trillion cubic feet in mid November.
“With an El Nino winter playing out most projections are calling for heating fuel consumption coming in well below normal through the majority of the winter,” Chirichella said.
If the winter is warmer than normal as expected, traders noted the end of the winter season storage level could turn out to be at a record high level for that time of year and a major drag on prices throughout the winter heating season and into the spring. The warm winter forecasts were taking their toll on the winter futures.
The November-March winter 2015 contract fell to its lowest level in at least nine years, while the premium of the March 2016 future over April 2016 <NGH6-G6> dropped to its lowest in at least seven years.
March-April is usually the widest month-to-month spread of the year since it marks the end of the winter heating season and the start of spring, making it one of the most widely traded gas spreads. It is known as the widow-maker because it can quickly turn against speculators with changing winter forecasts.
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