Winter natural gas prices likely to stay consistent

Winter strip pricing for natural gas has been remarkably consistent in recent years and that's expected to continue this calendar year. Some key drivers include weather outlook and inventory level.
By Ben Straus | November 25, 2013

Oct. 25—Over the past four years, the natural gas market has shown a remarkable level of consistency when it comes to pricing the winter strip, the five futures contracts for delivery November through March. From 2010 through 2012, winter strip pricing closed on the final trading day at $3.83, $3.80 and $3.81. Interestingly, 2013 appears to be headed to a very similar destination, with winter strip trading at just under $3.70, with three trading days remaining. 

Winter natural gas prices are subject to many drivers, but a few key ones have been remarkably consistent over the past few years. First is the weather outlook for the upcoming heating season. Before entering the winter heating season, analysts and market participants tend to model future consumption based on historical patterns. A second driver is inventory level. From 2010 through 2012, natural gas storage injections set progressively higher “record” levels of inventory at 3,840 billion cubic feet (Bcf), 3,852 Bcf and 3,929 Bcf. Although 2013 will fall short of the 2012 record, inventory is likely to be above 3,800 Bcf by Nov. 8. Although the shortfall for 2013 might appear to be a large divergence, the five-year average inventory level is 3,750 Bcf and year-over-year gains in production growth of more than 1 Bcf per day project to a higher level of deliverability than last year. Between consistent expectations for winter demand and consistent outlooks for winter supply, it only seems logical that winter prices would show a high degree of consistency at this point on the calendar over the past three years.