US natural gas futures settled 6% lower on Tuesday after trading down over 10% earlier in the day as traders abandoned the March contract a day ahead of its expiration to take profits.
Tuesday's decline followed an 11% drop on Monday after the front-month contract hit a five-year high, marking the biggest two-day fall in 11 years and continuing a trend of large price swings this winter, Reuters reported.
Prices are now up 20% for the year after arctic weather and record heating demand rapidly depleted stocks, far below the 53% increase for the year seen at the high early on Monday.
Front-month natural gas futures on the New York Mercantile Exchange fell 35 cents, or 6.4%, to settle at $5.096 per million British thermal units, the news wire said.
The contract traded in a 70-cent range, from an early high of $5.492 to a low of $4.788 before recovering to settle above $5 per MMBtu as contract options expired. Monday's $1.11 daily
swing was the largest since August 2006, according to Reuters data.
Unlike the March contract, April and the forward months rose Tuesday.
"The front month contract is falling due to technical weakness but the rest of the forward curve is pricing in continued winter withdrawals," said Aaron Calder of Gelber & Associates in Houston.
Traders noted the March-April 2014 spread fell to 41 cents from 83 cents a day earlier and down from the life-of-contract high of $1.45 hit last week, according to Reuters data.
That's "another sign that the market is moving away from a winter weather focus to more of a forward supply and demand focus," said Dominick Chirichella of Energy Management Institute.
Analysts and traders said the dramatic slide this week was likely caused by the market's inability to break the $6.50 technical resistance point Monday morning and profit taking ahead of the options and contract expiration.
Beyond March, futures prices were supported by weather forecasts calling for more extreme cold and concern about depleted gas in storage.
MDA Weather Services forecast unrelenting cold in the US North-Central over the next five days with more cold expected over much of the country over the next six to 10 days.
Gas inventory is already at the lowest level in a decade and early estimates call for a weekly withdrawal of roughly 110 million cubic feet of gas, lower than the five-year average.
Nuclear plant outages, which create demand for natural gas as a substitute fuel, were at 11,200 megawatts (MW) on Tuesday versus 11,600 MW on Monday. That compares with 15,800 MW a year ago and a five-year average of 11,100 MW out.
In next-day gas trading on the IntercontinentalExchange, gas prices were lower across the country with the exception of the New York area.
At the Henry Hub, the benchmark US supply point in Louisiana, next-day gas averaged $5.22 per MMBtu, down $1 from Monday's close. The last Henry Hub trade was at $4.98, about 6 cents above the Nymex March contract at that time.