US natural gas futures briefly fell below $2 per million British thermal units early Tuesday, the lowest level in over three years, bringing total losses since last Wednesday to 19%.
Front-month gas futures on the New York Mercantile Exchange fell 1.6 cent to $2.046 per million British thermal units paring losses from the session low of $1.948 per mmBtu.
Prices collapsed over the prior four days as traders focused on unfavorable warmer-than-normal weather data for the psychologically important first week in November, when utilities usually shift to drawing down inventories to meet winter heating demand.
Instead inventories are expected to continue growing into the middle of November to a record high around 4 trillion cubic feet.
In addition to the bearish weather forecasts, traders said the price rout was exacerbated by the upcoming expiration of the New York Mercantile Exchange’s
front-month options on Tuesday and the November contract on Wednesday.
With the recent sharp declines in the front-month, implied volatility a component used to price options, climbed to its highest level in eight months.
On the NYMEX, the discount of the front-month November contract, which expires Wednesday, under the second-month December contract widened to the most since 2011.
Both European and US weather models called for continued above-normal weather over the next two weeks, keeping heating demand for residential, commercial and industrial customers much lower than usual for this time of year.
Only the power sector continues to use more gas than usual for this time of year because gas prices remain relatively low compared with coal, prompting generators to burn more gas and less coal.
In fact, with prices so low, traders noted generators were expected to use even more gas in the future and data from Thomson Reuters Analytics shows that with power demand expected to rise to 25.8 billion cubic feet per day from 25.2bcfd.
On the IntercontinentalExchange, meanwhile, next-day gas prices at the Henry Hub benchmark GT-HH-IDX in Louisiana fell to the lowest level since April.
