Is weather the difference?

The chart below shows a temperature chart that covers last year compared to this year. In a nutshell it tells us that last year it was much warmer than average almost everywhere, but especially in the East, where  most gas consumption happens.   This year it's been normal in the East and West but cooler than average in the mid-continent.

What does this mean?  As we exited the warmer than expected winter last year there was a record amount of gas left in storage. Makes sense that since demand was down, and production and drilling was up, that less gas was drawn out.  In the summer months that followed natural gas prices hit lows not seen for a decade or more. Good news for consumers, bad news for natural gas producers.

Let's jump ahead a year to the past three month winter period. Drilling and production are down because summer pricing was so weak, and because demand was down due to already full storage. And although we started the winter with full storage, and though the fall was mild, the Jan- Mar period was much cooler. This resulted in more gas being drawn from storage, exacerbated by reduced drilling and production, and has led to reduced gas being available in the ground.

So what's the result? In a sane world prices wouldn't really have changed a lot. After all production is still way above demand and we are certain to have full storage levels going into next winter. Notwithstanding, the "market", the guys at NYMEX, loves volatility because that's what makes money. So in the short term prices have spiked on the day market following along with the futures prices for summer and winter gas. As consumers we have to give back the savings of last summer for the profits of the market now. That's how averages work.

While some will predict doom and gloom and proclaim that the market will never stop going up now that it's started, and some will say just the opposite, the truth is in the middle, in the average. Natural gas in the three to four dollar range is a reasonable expectation, not the lows of last summer, nor the highs seen in the past month.