Early Start to Winter Kicks Off Natural Gas Price Volatility

2 min read

Constellation energy market analysts regularly monitor the status of the natural gas market, allowing customers to be apprised of gas pricing and volatility that may affect their energy bills. This information allows customers to make well-informed energy decisions. The following describes recent analysis of the market:

Prompt-month natural gas prices have rallied from $3.24 per MMbtu, or one million British Thermal units, on November 1 and settled at $4.84 on November 14, a 50% increase and the highest settlement price in four years. The second half of November has featured high volatility as gas prices have bounced between $4 and $5 per MMbtu.

NYMEX Henry Hub Natural Gas Futures

Weather is king – This market is 90 percent about the weather. November is shaping up to be a top five coldest month since 1950. More importantly, December moved from “warmer than normal” and shifted decisively to “normal” and then to “colder than normal.” This represented a big shift in weather expectations for December.

Storage is the crown prince – If the market is 90 percent about the weather, that has everything to do with the fact that inventories of natural gas in underground storage are at a low. Inventories of natural gas in underground storage began the month of November at nearly 3.2 trillion cubic feet (Tcf), a 15-year low. Combining low storage inventories with very cold early winter temperatures has proven to be a recipe for a ramp up in prices and high volatility.

Pricing action depends on the king and the crown prince –  The vast majority of the upward pricing action has been confined to January, February and March. The NYMEX 12-month strip (as of November 30th at 12:05 p.m. EST) was trading at $3.19, significantly below January-March 2019.

The weather forecast in the coming weeks will continue to be front and center in the natural gas market pricing action and will play a pivotal role in determining market direction as we enter 2019. Tune into our December 19th Energy Market Intel Webinar, where Constellation’s meteorologists share their latest update on the winter weather forecast.

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