Lack of weather related demand this winter has driven the natural gas market toward 10-year lows and allowed inventory stockpile levels to reach all-time highs. 

Data from the Energy Information Administration (EIA) through the week ending January 27 reports that natural gas storage levels are at 2,966 Bcf, about 375 Bcf higher than the previous record high of 2,571 Bcf set in 2007 during the same week.  In addition, the surplus in storage levels to last year and the five-year average continues to expand as a result of 12% lower population-weighted heating degree days (HDD) versus the 30-year average.  The combination of excess supply and waning demand has resulted in forward natural gas prices remaining below $3/MMBtu for nearly a month and cash prices for January at the lowest level seen in 10 years (minus a 4-day period over the Labor Day weekend in 2009).

It is still too soon to officially say winter is over, but recent forecasts do not support a winter type pattern through February.  Current February forecasts are calling for a continuation of warmer-than-normal temperatures throughout the East and Midcontinent with the possibility of a cooler pattern developing in the West during the second half of the month. 

If the forecast for above-normal temperatures throughout February verifies and March temperatures are normal, the warmest winter since 1950 (on a gas weighted HDD basis) is in reach. Even if below-normal temperatures show up in March, the probability of getting extreme cold and boosting HDD levels will be tough since March normals are much higher than January normals.

With any sustained period of cold unlikely in the near-term, natural gas storage levels are poised to further expand the year-over-year surplus and end the withdrawal season in March at record levels.  Assuming historical normal temperatures during the April through October injection season, natural gas inventories could potentially begin next winter at record levels once again.  Going forward, the market will continue to monitor production levels, rig count curtailments and market share of natural gas in the power generation sector.

Winter so far (December-current):

February 2012 Outlook:

Source: NOAA, EIA, NYMEX