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Commodities Corner: Why natural-gas futures logged their biggest one-day percent gain on record

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Natural-gas futures tallied their largest one-day percentage gain on record Thursday, up more than 46%, with the rally fueled by the expiration of the February contracts, and a “classic” short squeeze as a winter storm looms in the Northeast.

“This is why it’s so dangerous to be short natural gas in the winter,” said Phil Flynn, senior market analyst at The Price Futures Group. “It’s especially dangerous to be short at a time when the expiration is right around the corner.”

February natural gas NGG22, +37.95% climbed $1.99, or 46.5%, to settle at $6.265 per million British thermal units on Thursday. The futures contract expired at the end of the trading session.

March natural gas NGH22, +8.23%, which is the new front month, added 25 cents, or 6.1%, to settle at $4.283.

Read: Oil prices end lower, but remain near multiyear highs as Ukraine worries persist

The February contract settlement marked the biggest one-day percentage gain for a front-month contract based on records dating back to 1990, and the highest finish since October of last year, according to Dow Jones Market Data.

Flynn saw the move for the February contract as “another classic short squeeze that the natural gas market has been famous for.”

“The $46% rise in February natural gas is “another classic short squeeze that the natural-gas market has been famous for.””

— Phil Flynn, The Price Futures Group

“Somebody who is betting on low prices failed to take into account that it was winter,” he told MarketWatch. “The physical markets were very very high and somebody got caught on the wrong side of this market.”

With the contract expiration, “it was put up and shut up time — and someone got caught,” said Flynn.

A powerful storm, referred to as nor’easter, is expected to develop in the western Atlantic starting late Friday, bringing heavy snow and strong winds to parts of the East Coast, according to The Weather Channel. The storm could drive up demand for natural gas, as demand for heating climbs.

“Physical demand is so high with this looming storm in the [Northeast] that the February futures contract got piled into for those looking to reload stockpiles they expect to offload, amid the impending cold snap,” explained Tyler Richey, co-editor at Sevens Report Research.

Still, Tariq Zahir, portfolio manager of the Global Macro Program at Tyche Capital Advisors, said it was not actually surprising to see natural gas spike as much as it did on Thursday.

It was “due to the rhetoric heating up,” related to the potential invasion of Ukraine by Russia, and the natural-gas contract expiration, he said. “There were definitely some people caught offsides on this trade going into expiration.”

Natural-gas prices were already on the rise before the sudden jump near the settlement.

The U.S. Energy Information Administration reported on Thursday that domestic supplies of the fuel fell by 219 billion cubic feet for the week ended Jan. 21. IHS Markit had forecast a decline of 209 billion cubic feet.

The weekly decline left U.S. stockpiles at more than 10% below last year’s levels, said Richey.

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