Natural gas prices have spiked over the last few weeks as U.S. inventories run low ahead of the peak winter heating season.
Nymex natural gas prices have jumped nearly 15 percent over the past month, rising to roughly $3.30 per million Btu (MMBtu). The market has clearly grown a little concerned about adequate supplies heading into the winter and that is reflected in natural gas prices rising to their highest point since the beginning of the year.
For the week ending on September 28, natural gas inventories stood at 2,866 billion cubic feet (Bcf), or 636 Bcf lower than at the same point a year earlier, as well as 607 Bcf below the five-year average.
Inventories dropped to extraordinarily low levels last winter as much of North America became enveloped in exceptionally cold weather. As tens of millions of people cranked up the heat, the U.S. burned through record levels of natural gas. That stood in stark contrast to the year earlier, when a much milder winter led to above-average levels of gas in storage.
Natural gas markets are cyclical, with a buildup in storage between April and November – the so-called “injection season” – and steep drawdowns during the winter. The stockpiling during injection season is necessary to provide enough supply to consumers for winter heating needs.
But the problem is that the U.S. is currently on track to finish up the injection season with the lowest level of gas sitting in storage in 13 years. Even though demand sees seasonal peaks and valleys, consumption is rising on a structural basis as more coal plants shut down and more gas is exported in the form of LNG.
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