US natural gas futures dropped to a three-month low on Wednesday along with a collapse in oil prices, cutting the 2022 March-April spread to its lowest in 20 months as gas output rose to record highs and stockpiles remain healthy for the winter.
The gas industry calls the March-April spread the "widow maker" because rapid price moves resulting from changing weather forecasts have knocked some speculators out of business, including the Amaranth hedge fund, which lost over $6 billion on gas futures in 2006.
The premium of gas futures for March over April fell to 28 cents per million British thermal units (mmBtu), the lowest since March 2020.
That is a massive narrowing of the spread, which hit a record $1.80 in early October when the markets worried about tight US gas supplies during the winter because stockpiles were over 6% below normal and output was slipping.
Now, however, US inventories were just 2% below normal for this time of year after mostly mild weather in October and November allowed utilities to stockpile huge amounts of gas.
Output in the US Lower 48 states, meanwhile, averaged a record 96.5 billion cubic feet per day (bcfd) in November, up from 94.2 bcfd in October, according to data provider Refinitiv. That topped the prior all-time monthly high of 95.4 bcfd in November 2019.
In addition to the narrowing March-April spread, the premium of futures for November over October 2022 rose to 10 cents, their highest since April 2011.
The market uses the March-April and October-November spreads to bet on the winter heating season when demand for gas peaks.
The entire global energy complex collapsed over the past week on concerns demand will fall as coronavirus cases rise, causing a supply glut.
Oil prices fell to their lowest since August earlier on Wednesday.