Friday, natural gas futures plunged 6%. Monday morning, when folks were thinking about the beautiful Santa Rally, NG futures plunged nearly 10% to $3.12 per million Btu, the lowest since January 10, 2013. But the crazy day had just begun. NG bounced off and jumped nearly 4%, only to give up much of it later. Tuesday morning, as I’m finishing this up, NG continues to decline, now at $3.11/mmBtu. Down 30% from a month ago.
NG demand peaks when the heating season starts. It’s a bet on the weather. Our gurus forecast warmer than normal temperatures across the country, so prices plunged. Or shorts piled into the pre-holiday session with exaggerated effect to make a quick buck.
Here is what this 30-day, 30% plunge looks like (each bar = 5 hours):
Whatever the cause, NG has traded below the cost of production of many wells for years. That lofty $4.40/mmBtu on the left side in the chart above is still below the cost of production for many wells. The price simply fell from bad to terrible.
