Natural Gas Prices Outlook – December 12-16

Natural gas continued to trade down during most of last week and reached on Friday the lowest prices in over two weeks; the winter will probably set during the upcoming. This could help push up the prices of natural gas.

Let’s see what is up ahead for natural gas prices during the upcoming week of December 12th to December 16th:

Natural Gas Prices December 2011 – Update

On Friday, December 9th natural gas Henry Hub future price (January delivery) sharply fell by 4.05% to $3.320/MMbtu – the lowest price level since November 18th; Henry Hub natural gas spot price wasn’t traded on Friday and so it remained at $2.83/MMbtu – the lowest price since November 16th, 2009; during November Henry Hub future price fell by 9.92% and natural gas spot price by 22.68%.

The chart below demonstrates the development of Henry Hub spot and future (December delivery) prices during November.


Natural gas spot price future (Henry Hub) December 2011 December 12

Snowy System in the South of the U.S.

According to the recent weather forecasts there are expected sown weather in South, but the weather is expected to be sunny with slightly warmer than normal temperatures in the Northeast – one of the prime consumers of natural gas among all U.S. regions. This means the demand for natural gas in the U.S. for heating purposes will start to rise but not substantially until the cold weather will reach the Northeast.

Future and Spot Prices

The natural gas market came down from the high levels of contango (the premium of Henry Hub future over spot prices) it had been a few weeks back; the Henry Hub even reached at one point last week Backwardation for the first time in over two months. If the natural gas market will remain in contango, this could be interpreted that the market expects natural gas prices to further incline (but at a slower pace than a few weeks back) during the weeks to come. The chart below shows the changes in contango/backwardation for the Henry Hub prices during December (until December 9th).


Contango  Backwardation Natural gas (Henry Hub) Future-Spot  December 2011 December 12

Natural Gas Storage – Inclined by a Slower Pace  

The underground natural gas storage (Billion Cubic Feet) declined last week by 20 Bcf to 3,831 billion cubic feet for all lower 48 states; the natural gas storage is 8.7% above the 5-year average, and is 2.7% above the storage level during the same week in 2010.

To sum up, natural gas consumption and imports increased while natural gas storage and production declined during the week of December 2nd.

The new report will be published on Thursday, December 15th.

Current Natural Gas Prices (December 12th)

Natural gas future price is currently traded sharply down in U.S. commodities market:

The Nymex Henry Hub natural gas price, short term futures (January 2011 delivery) is traded at $3.25 / MMbtu, a 2.02% decrease, as of 19:16*.

(* GMT)

Natural Gas Prices Outlook:

Natural gas spot price continue its downward trend during last week and may continue to decline during the upcoming week as the cold weather is only reaching the South and not Northeast of the U.S. The recent decline in crude oil prices may also keep natural gas prices low.

I speculate the current natural gas prices will continue to decline and the future price will probably slip as well and further close the gap between future and spot prices; nevertheless. If the weather will get colder in the days to come the demand for natural gas will tend to rise and may even reverse the downward trend of natural gas prices.  

For further reading:


Monthly Reports


Lior Cohen, M.A. commodities analyst and blogger at Trading NRG.