U.S. natgas price volatility hit record highs in 2022
U.S. natural gas futures price volatility, both implied and historic, hit record highs in 2022 as global prices spiked due to supply disruptions and sanctions linked to Russia’s war in Ukraine, feeding demand for U.S. exports.
That extreme volatility has continued on the first trading day of 2023 with futures down over 10% to a 10-month low.
Last year, volatility rose on the shutdown of Freeport LNG’s liquefied natural gas (LNG) export plant in Texas after an explosion in June. Its restart was delayed several times: from October to November, then to December and now to the second half of January.
Gas futures rise and fall on every new piece of news about Freeport because gas demand will soar once the plant returns. Freeport can turn about 2.1 billion cubic feet per day of gas – about 2% of U.S. daily production – into LNG.
At-the-money 30-day implied volatility, a determinant of an option’s premium, averaged 80.6% in 2022.
That topped the previous annual record of 68.6% in 2009 and compares with 53.6% in 2021 and a five-year (2017-2021) average of 44.5%.
On a daily basis, implied volatility hit a record high of 132.6% in November 2022 and a record low of 18.6% in April 2019.
The market uses implied volatility to estimate likely price changes in the future. A liquid and volatile market like U.S. gas gives investors lots of opportunities to make (and lose) money quickly.
Historic or actual 30-day close-to-close volatility, meanwhile, averaged 92.7% in 2022.
That topped the previous annual record of 75.0% in 1996 and compares with 50.7% in 2021 and a five-year (2017-2021) average of 47.2%.
On a daily basis, historic volatility hit a record high of 177.7% in February 2022 and a record low of 7.3% in June 1991.
(Reporting by Scott DiSavino; Editing by David Gregorio)
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