Winter Storm Sends Nat Gas Futures Past $6 Benchmark

Summary

A winter storm pushed U.S. natural gas futures above $6 per MMBtu as severe cold knocked production offline and stressed energy infrastructure. Stephen Schork of The Schork Report argues the market was complacent and is now scrambling, with utilities forced to buy gas and short-positioned investors exposed. He warns that February contract risk was undercounted and that the market should not assume prices crash when the cold passes, especially given cold forecasts into late February.

• U.S. natural gas futures surged past $6 per MMBtu amid a severe winter storm.
• About 12% of natural gas production was knocked offline, with three-quarters of U.S. production under stress.
• PJM told utilities to secure gas supply a week ahead, forcing purchases at peak prices.
• Stephen Schork said the market was complacent before the cold shift and options traders underpriced the event.
• Institutional other reportables were heavily short natural gas before the cold front.
• Cold weather is forecast to stick around from Chicago to the East into late February.
• Schork warned not to assume natural gas will crash when the cold passes, pointing to the March contract.
• February contract risk was undercounted ahead of its Wednesday expiration.