Photographer: Callaghan O’Hare\/Bloomberg <\/p>\n
(Bloomberg) — Months of mild weather lulled US and European gas traders into believing winter would bring more of the same \u2014 not the brutal freeze gripping much of America.<\/p>\n
Their bad bet is now reverberating around the world.<\/p>\n
Most Read from Bloomberg<\/p>\n
Futures prices for natural gas\u00a0\u2014\u00a0fuel for\u00a0home furnaces and power plants alike \u2014\u00a0jumped 70%\u00a0in the US over\u00a0a wild week of trading, as forecasts for deep cold grew steadily worse. The previous week, prices rose\u00a030% in Europe, where a cold snap combined with geopolitical jitters to drive up the market. Before the sudden surge, many traders on both sides of the Atlantic had been betting prices would fall\u00a0instead.<\/p>\n
Nor is it certain that the worst of the run-up is over.<\/p>\n
Temperatures in gas-producing parts of the US could drop low\u00a0enough in coming days to freeze pipelines \u2014 potentially choking off supplies just as demand for the fuel soars.\u00a0While the main futures market is closed over the weekend, some spot trading will continue. With that in mind, one trading team planned to spend Saturday and Sunday\u00a0at a downtown Houston hotel to ensure backup power generation \u2014\u00a0and a stable internet connection to the Intercontinental Exchange\u00a0trading platform \u2014\u00a0should blackouts sweep the region.<\/p>\n
\u201cEveryone\u2019s in panic mode right now,\u201d said Paul Phillips, senior strategist for Uplift Energy Strategy, a Denver, Colorado-based gas trading firm. \u201cPeople were writing off winter last week.\u201d<\/p>\n
The price spike \u2014\u00a0the most abrupt weekly increase on record in the US \u2014\u00a0illustrates just\u00a0how integrated the country\u00a0has become into the global gas market. America\u2019s emergence in recent years as the leading gas exporter means much of the world is now reliant on US supplies, making\u00a0price volatility at home an international\u00a0story. Indeed, cold weather in Texas and other gas-producing states has helped drive\u00a0prices so high that many smaller buyers in Asia may no longer be able to pay, with liquefied natural gas tankers likely sailing to Europe instead.<\/p>\n
<\/p>\n
While winter triggered the spike, it was far from the only cause.<\/p>\n
Many gas traders started January expecting prices to drop, based on ample supplies. Then\u00a0cold weather in Europe\u00a0started driving up demand, while protests in Iran and US President Donald Trump\u2019s talk of seizing Greenland raised the geopolitical risk to energy markets. Gas prices began to rise, prompting\u00a0a frantic scramble among European traders to cover their short positions. Their frenzied buying accelerated the rally.<\/p>\n
\u201cThis was a case of markets overextending in terms of positioning,\u201d said\u00a0Udayan Bhattacharya, chief trader at Global Risk Management,\u00a0a Copenhagen company that advises clients on energy price hedging. Combine those positions with some bad weather and political tension, he said, and \u201cyou get a violent, short covering situation like we saw the last few days.\u201d<\/p>\n
A similar \u201cshort squeeze\u201d played out\u00a0this week in the US, as the weather forecast worsened and threatened\u00a0gas supplies. Just five years ago, a deep freeze knocked out pipelines and power plants in Texas, triggering days of blackouts and leaving more than 200 people dead. And the fuel\u00a0has only grown more essential \u2014\u00a0to both the US and the world \u2014\u00a0since then.<\/p>\n
Photographer: Ron Jenkins\/Getty Images <\/p>\n
Gas\u00a0has\u00a0displaced coal as the main fuel of US power plants over the past decade, due both to its cheap cost and low pollution. At the same time, the country has become the world\u2019s leading liquefied natural gas exporter, as fracking unlocked massive shale reserves.\u00a0US LNG production has more than doubled since 2021, with eight export\u00a0plants operating along the Gulf Coast and two on the East Coast. In early January, US LNG plants processed a record amount of domestic gas, equivalent to about 18% of the country\u2019s total gas production.<\/p>\n
And yet, even as both supply and demand grew, the US built little new storage for the fuel, said\u00a0Christopher Kalnin, CEO of BKV Corp., the largest gas producer in Texas\u2019\u00a0Barnett Shale. That combination of tight storage and strong demand can trigger\u00a0dramatic price spikes, he said.<\/p>\n
\u201cIt\u2019s like a heavier and heavier person jumping on a trampoline,\u201d Kalnin\u00a0said. \u201cYou\u2019re going to get more and more volatility.\u201d<\/p>\n
One senior trader at a major US gas producer said\u00a0that while the rally\u2019s first day was exciting \u2014 higher prices mean more money for companies that produce and ship the fuel\u00a0\u2014 the thrill\u00a0turned to apprehension as prices continued their\u00a0relentless climb. Such high levels, with futures finishing the week at $5.275 per million BTU,\u00a0can indicate\u00a0extreme conditions that might prevent a seller from transporting gas to buyers. If buyers can\u2019t receive the fuel, those massively profitable gas sales can be made worthless.<\/p>\n
To top it all off, trading algorithms were betting on price declines in the US going into the week, according to data from Bridgeton Research Group. Only when gas futures started smashing through key price thresholds did those bot traders start buying back contracts at a loss, moving from 100% short at the start of the week to 45% net short on Thursday. Similarly, hedge funds were\u00a0near their most bearish gas position in over a year, according to data from the Commodity Futures Trading Commission.<\/p>\n
\u201cThe market had given up on winter until this week,\u201d said Darrell Fletcher, managing director of commodities at Bannockburn Capital Markets. \u201cThen it all changed very quickly.\u201d<\/p>\n
A further rally now depends on how long the US freeze will last \u2014\u00a0and how it impacts the country\u2019s\u00a0exports. Shipments\u00a0have fallen during previous winter storms, most notably\u00a0in February 2021. But if the impact is limited to several cargoes this time around, European prices could retreat soon, according to some traders.<\/p>\n
Photographer: Mark Felix\/Bloomberg <\/p>\n
Although the market for LNG is global, not every country will feel the effects of the price spike equally.<\/p>\n
China and Japan, the world\u2019s two largest LNG buyers, were hit by frigid weather over the last few weeks. But both have\u00a0strong inventories, shipments purchased under long-term contracts and alternative fuel choices, according to traders in Singapore.\u00a0That could free up some spare LNG shipments to flow to Europe, restraining prices there.<\/p>\n
But smaller players will be squeezed.\u00a0Officials from Thailand\u2019s state-owned gas importer, PTT PCL, decided to scrap a planned LNG purchase after tender offers came in far higher than expected, one of the traders\u00a0said.\u00a0Instead, they\u2019re hoping prices fall by March, when Europe\u2019s winter ends.<\/p>\n
–With assistance from Elena Mazneva, Alberto Brambilla, Devika Krishna Kumar, Stephen Stapczynski and Sing Yee Ong.<\/p>\n
Most Read from Bloomberg Businessweek<\/p>\n
\u00a92026 Bloomberg L.P.<\/p>\n","protected":false},"excerpt":{"rendered":"Photographer: Callaghan O’Hare\/Bloomberg (Bloomberg) — Months of mild weather lulled US and European gas traders into believing winter…\n","protected":false},"author":2,"featured_media":255873,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[1877,135648,63,135647,135646,30422,42,76194,135645,28757,43,78683,16038,135649,40,38,41,39],"class_list":{"0":"post-255872","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-headlines","8":"tag-bloomberg","9":"tag-drive-prices","10":"tag-europe","11":"tag-futures-market","12":"tag-futures-prices","13":"tag-gas-prices","14":"tag-headlines","15":"tag-liquefied-natural-gas","16":"tag-mild-weather","17":"tag-natural-gas","18":"tag-news","19":"tag-photographer","20":"tag-power-plants","21":"tag-price-volatility","22":"tag-top-news","23":"tag-top-stories","24":"tag-topnews","25":"tag-topstories"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts\/255872","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/comments?post=255872"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts\/255872\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/media\/255873"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/media?parent=255872"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/categories?post=255872"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/tags?post=255872"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}