Natural Gas Markets Remain Ultra Tight
Natural gas prices skyrocketed this week, shooting above $4.80 per MMBtu on Wednesday, a price last seen during the polar vortex of 2014.
Low gas inventories are leaving the market on edge, and volatility has roared back to the market. In this column only a week ago, I marveled at prices soaring to $3.50/MMBtu, which marked a 15 percent increase over the prior two months. However, in the last seven days, prices are up a further 30 percent.
The factors behind the price increase are the same as they have been for quite a while now. U.S. natural gas inventories are at a 15-year low for this time of year, just as we head into the winter drawdown season. U.S. natural gas inventories stood at 3,247 billion cubic feet (Bcf) for the week ending on November 9, or 528 Bcf less than at this point in 2017, and 601 Bcf below the five-year average. In other words, the U.S. has a thin buffer of storage to fall back on in the event of a sudden bout of cold weather.
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And it is exactly that variable that helped spark the most recent rally in prices. Reports that cold weather has arrived in much of the U.S. already, plus indications that the upcoming winter could be an unusually cold one, helped fuel this week’s rally. Natural gas had traded below $3/MMBtu for much of this year, but climbed roughly 50 percent since mid-September.
Just a few weeks ago, Bank of America Merrill Lynch said that given the backdrop of a 15-year low for inventories, any unexpected cold weather could push prices up as high as $5/MMBtu. That may have looked a little aggressive at the time, but now appears rather prescient.
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