U.S. Natural Gas Abruptly Surges in Record Short Squeeze

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U.S. natural gas futures suddenly spiked the most on record Thursday afternoon, a dramatic move that signaled bearish wagers being squeezed out of the market.

The eye-popping surge of as much as 72% came ahead of the expiration of the February contract, which was thinly traded, as weather forecasts turned colder. A spokesperson for CME Group confirmed the price jump, the most since the contract launched in 1990. The more-active March contract saw a gain of less than 10%

Gas prices have been volatile in recent weeks as traders try to gauge whether winter cold will strain stockpiles of the power-plant and heating fuel. The chillier shift in the weather outlook near the futures expiration contributed to the sharp increase in prices, traders said. In a short squeeze, traders exposed to wrong-way bets on lower prices rush to close out those positions by purchasing higher-priced contracts.

“The way the price whipsawed is a sign of a very classic commodity short squeeze,” said Campbell Faulkner, the chief data officer at OTC Global Holdings LP. “Frankly, there is no other good explanation. Even if we had a bomb cyclone going on, we wouldn’t see prices move this much.”

Front-month futures contract briefly spiked as expiration neared

Though hedge funds have been net-long on U.S. gas contracts, indicating they expect prices to rise, money managers still held substantial short positions, according to data compiled by Bloomberg.