Two weeks ago, after February spiked to the highest settlement value for a monthly contract since September ’22, March began to make up its historically exceptional discount to an expired prompt ($3.732 v $7.460). Well – bid into the weekly close March traded as high as $4.425 late Friday, narrowing the still substantial “expiration” gap by $.436, but the enthusiasm for perennially amply offered March gas was short – lived. When trading resumed March gapped lower. With the most volume ever traded in a day (1,909,214 contracts…the previous record was 1,602,673 traded on 11/14/18 coincident with the Q4 and annual high of 2018) March continued to fall toward a bottom at $3.155 (27.5% below the new prompts close on the last trading day of January).
As March fell, open interest spiked 55,153 contracts (I don’t think that’s a record, but you can see it from there). If open interest increases as price falls it is an article of technical faith that the bulk of the selling was either short hedging of anticipated production or speculative short selling driving the bid lower (if the selling was from liquidation open interest would have fallen). While there was certainly some of both, I am pretty sure the latter was a significant contributing factor…because the following day when March rallied the total fell 54,189 contracts. A whipsaw for the ages for those folks ( illustrative of the dysfunctional state of the current market). Look for additional dysfunction in the coming month.
