Natural-gas prices fell 17% since Monday, the largest two-day drop in the market more than six years, as investors continued to take profits from last week's rally.
Futures for March delivery settled down 34.9 cents, or 6.4%, at $5.096 a million British thermal units on the New York Mercantile Exchange.
"The downward move started a chain reaction as long traders quickly exited their positions while they were still profitable," consultancy Gelber & Associates said in a note. "The slide came in direct contrast to the latest weather reports."
The March contract expires Wednesday, and options on the contract expired with the end of trading Tuesday. Most of the trading volume in the market is moving into the April and May contracts. Natural gas for April delivery ended 1.5% higher at $4.4691/mmBtu.
Analysts and forecasters said the underlying dynamics that have driven this year's rally in natural-gas prices are unchanged: forecasts for extraordinarily cold weather through the final weeks of winter remain in place, suggesting continued strong demand for heating-related fuels. Natural gas is the source of home heating for more than half the U.S.
Indeed, some new forecasts Tuesday called for prolonged deep cold through March and possibly into April, though others began to reflect a break in the middle of the month.
"It's premature to look at winter through the rearview mirror," said Teri Viswanath, director of natural gas strategy at BNP Paribas. "The tight conditions ahead are not going to simply resolve themselves because we're in the final few weeks of the winter season."
The expiration of the March contract will also bring to a close one of the more volatile trades in the market, betting on the price difference between it and the April contract as winter wanes and heating-driven demand dries up. The price gap widened to as much as $1.423 on Feb. 20 but ended at 40.5 cents Tuesday.
Market watchers are also looking ahead to levels of stored inventories as the winter winds down for indications on whether there will be enough supplies when heating season begins in the fall. Inventories are already at their lowest level in a decade.
