This Labor Day, natural gas price, measured by January futures, reflected a $7.596 per million BTU discount to crude oil. Over the past week, the discount eroded by 99 cents, or 13%.
For futures spreaders—that is, those long natural gas and short crude oil contracts—trading on exchange-minimum margins, the shrinking discount has yielded a 32% return to date.
This season's discount shrinkage is fast-paced compared with last year's. In 2008, a historically large discount was trimmed by 7.3% in the first week.
Not every seasonal spread starts out favorably, though. In fact, over the past 14 seasons, the discount's been trimmed (or, in one year, the premium augmented) only six times in the first week.
Let's hope what begins well, ends well.