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US natgas implied volatility hits record on delayed Freeport LNG restart

U.S. natural gas futures implied volatility hit a record high on Tuesday following weeks of rapid price moves due to changing winter weather forecasts and questions about the restart of the Freeport liquefied natural gas (LNG) export plant in Texas.

The market uses implied volatility NGATMIV to estimate likely price changes in the future.

Gas futures were already trading up about 11% on Wednesday before the long U.S. Thanksgiving Day holiday weekend on forecasts for much colder weather and higher heating demand over the next two weeks than previously expected.

Analysts said the market could experience even more volatility on Friday when options for the December contract expire on the New York Mercantile Exchange (NYMEX).

“Looking ahead as market players thin out even more for the remainder of the Thanksgiving holiday week, bigger price volatility is expected as ‘options expiration’ caps the end of this week,” analysts at energy consulting firm Gelber & Associates told customers in a note.

Traders said uncertainty remains about whether Freeport LNG will be able to restart its LNG export plant in Texas in mid-December as planned. Previously, the company said it planned to restart the plant in November.

Freeport matters because once the 2.1-billion-cubic-feet-per-day (bcfd) plant restarts it will turn lots of gas into LNG for export, increasing gas demand at the same time cold winter weather will force homes and businesses to burn more of the fuel for heat.

At-the-money 30-day implied volatility, a determinant of an option’s premium, for gas futures jumped to 123.4% on Tuesday, topping the prior all-time high of 122.5% in October 2021, according to Refinitiv data.

That compares with an average of 77.5% so far this year, 53.6% in 2021 and a five-year (2017-2021) average of 44.5%. Implied volatility hit an all-time low of 18.6% in April 2019.
Source: Reuters (Reporting by Scott DiSavino; Editing by Mark Porter)

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