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Mother Nature’s Impact on the 2013 U.S. Natural Gas Market

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December has begun and we are stuck in a weather pattern that is making many people across the eastern part of the U.S. unhappy. I received my gas bill in the mail recently for the November reading. We used two times more gas than last year. It has been abnormally cold for the past three weeks, and there doesn’t appear to be any relief in sight besides a brief warm-up this week.

The many weather patterns we’ve experienced this year have had an impact on the natural gas market, sometimes resulting in price spikes.

2013 U.S. Weather Overview
The first major winter storm of the year passed through just prior to Thanksgiving. However, it didn’t end up being nearly as bad as what was forecasted. In fact, the Northeast U.S. caught a break from what has been a rough start to winter 2014. The region actually warmed up as the storm moved up the east coast. It brought with it a lot of rain, snow, sleet, and freezing rain, but mostly rain and moderate weather for places such as New York, Washington, D.C., Boston, and Philadelphia. During the storm, temperatures started in the 30s and ended in the upper 50s to upper 60s. Unfortunately, as the storm continued to move, a cold front followed bringing temperatures back down to an unseasonably cold level.

Many parts of the country were not spared from the wrath of the first major winter storm. A significant amount of real estate across the south including, but not limited to, Arizona, New Mexico, Oklahoma, and Texas, were experiencing a significant amount of ice, snow, and extreme below-normal temperatures. Starting in California, the winter storm affected about 30 states sweeping south, and grabbing moisture from the Gulf of Mexico before heading up the east coast.

And while we are experiencing a brief reprieve in the east right now, there is more cold weather on the way as most of the country is forecasted to be far below normal next week.

What a change compared to this past summer when we were lucky with the weather! Summer was not especially hot; it was cooler than normal with the exception of a late hot spell from mid-August into September. In addition, the hurricane season brought only one storm that reached the mainland U.S.

What does this all mean? Are we in for a brutal winter since Mother Nature let us off the hook throughout the summer? How has the weather impacted the U.S. natural gas market?

Mother Nature’s Impact on the Natural Gas Market

The mild summer led to a low point on August 9th - $3.23 was the 6-month low for prompt month natural gas futures as traded on the New York Mercantile Exchange (NYMEX). The weak hurricane season and moderate fall temps contributed to dips late in September and again in early November (December futures fell to $3.43), but the cold November finish and forecasts for December cold have pushed near-term gas futures to just shy of $4.00 as of this article. That’s a move of more than 50 in just the past three weeks. If we continue to see significantly colder weather than normal there’s a risk of near-term higher gas trading – even in the $4.25 to $4.50 range. There wasn’t much cold weather last winter until mid –February, but it continued through April pushing prices to $4.40, the prompt month high since 2011. A repeat is not out of the question, although cold weather is unavoidable for many parts of the country. And the record levels of gas production will likely keep a ceiling on how high the market can go. At this point, it seems that Mother Nature has other things in mind.

Posted: June 03, 2013