Not three weeks ago, the Natural Gas market exploded in volatility, with its 3 day Average True Range (ATR) jumping 200% after being stagnant for about 4 years. That all seemed to be over after a pull back in prices with some warmer weather in the US… but the sneaky colorless, odorless gas has snuck back up over the past few days – and pushed through its past highs today going over $6 , something not seen by investors since 2009 {past performance is not necessarily indicative of future results}.

(Disclaimer: Past performance is not necessarily indicative of future results)
Charts Courtesy: Finviz.com

This shouldn’t surprise us, after Natural Gas has been moving up and down at great lengths, with 9 out of the past 18 days showing a gain or loss bigger than +5% or -5%, as traders essentially traded the extreme winter weather and higher heating bills via Nat Gas futures. So why the  8% jump today? Chicago is downright balmy today (in the mid 30’s – something we haven’t seen since November). Maybe it has something to do with the recent winter weather pummeling the southern states, that don’t typically need Natural gas this time of year, but Reuters offers another suggestion; that the winter blast across the U.S. is far from over.

“The 11-15 day forecast points to “ongoing colder than normal conditions” over much of North America, said meteorologists at MDA Weather Services in Gaithersburg, Maryland.

Temperatures in Chicago will reach sub-zero (Fahrenheit/below minus 18 degrees Celsius) at the end of nextweek while New York temperatures will reach into the teens, according to the MDA forecast.”

Whatever the reason – Natural Gas has kept it volatility up at 5 year highs in a return to its former glory days as a widow maker for professional (Amaranth, anyone) and individual investors alike.

(Disclaimer: Past performance is not necessarily indicative of future results)

But is this just because of the current weather conditions and forecast, or is this a more secular change in Natural Gas volatility. Are the good old days back for good?  To check that out, we took a look at the historical volatility of the March 2014 futures contract versus the January 2015 contract.  The Mar ‘14 contract is obviously looking at what is likely to draw down supplies right now (the current weather), while the Jan ’15 is more of a long term bet on what supplies will look like a year from now (a long enough time that it is impossible to predict what the weather will be like).

(Disclaimer: Past performance is not necessarily indicative of future results)

Whoa… March!  So you’re the culprit.  You can see that while there is a slight increase in volatility for the year from now contract (and it too is at levels not seen since 2010), the real action is in the March (now) contract. One of our followers on Stocktwits suggests that today is just the start of what’s to come, at least for the front month contract.

Either way, we Chicagoans would prefer to ditch the sub-zero temps (spring will come…right?), but we might be able to bare a couple more days of #Chiberia if it means we can continue to cheer on CTA’s in this long Natural Gas trade.

PS – for a full breakdown of Nat Gas stories, see here:  Nat Gas Linkfest