Weather, Storage Inventories and other Natural Gas Price Factors

Weather and natural gas storage inventories are two variables that are often discussed when analyzing current natural gas prices and where they are anticipated to go.

Earlier this year, working natural gas inventories ended the winter heating season at 2,478 Bcf. This exceeded the previous record high of 2,473 Bcf set in March 2012, which again followed a warm winter. Due to record warmth during the winter season and continued high levels of domestic natural gas production, inventory withdrawals during the traditional heating season (November through March) were relatively limited. Analysts expected to end the injection season with record high levels of natural gas in storage moving into the next winter season. However, after the unseasonably warm summer we had in 2016, inventories which usually grow at a rapid pace during this time of year, have not increased at the normal rate due to elevated cooling demand. As we close in on the completion of the normal injection season which generally runs through the end of October, working gas in storage currently stands at 3,551 Bcf as of Friday, September 16, 2016. Although stocks are 140 Bcf higher than last year at this time and 268 Bcf above the five-year average of 3,283 Bcf we are still much below the expected levels based on where we started.

In addition to the weather and storage levels, other supply and demand factors also influence natural gas prices:

Factors that may affect prices on the supply side:

  • Variations in the amount of natural gas production
  • The volumes of natural gas imports and exports
  • The amount of gas (storage levels) in underground facilities

Factors that may affect prices on the demand side:

  • Economic conditions
  • Variations in winter and summer weather/temperatures
  • Prices of competing fuels

Increases in supply tend to pull prices down, while decreases in supply tend to push prices up. Likewise, higher demand tends to lead to higher prices, while lower demand can lead to lower prices. As we enter what generally is a more volatile period for energy prices, it’s important to keep in mind the different elements that may affect the market and put a strategy in place to protect your business from unpredictable variables.

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