Dec. 30--Natural gas prices exhibited increased volatility in the fourth quarter of 2016 compared to previous months. NYMEX futures contracts deliverable through March 2018 have swung widely in response to drastic changes in near-term temperature outlooks and historically-large draws from natural gas stockpiles. Since early November, the prompt-month continuation has traded in a range of more than $1.45 per MMBtu, or about 56 percent, testing $4 per MMBtu on December 28 for the first time in over two years. The January futures contract surged into expiration, rolling off the board at $3.93 per MMBtu, the highest NYMEX expiration since December 2014 and about $0.70 per MMBtu above the December settlement.
A strong cold snap in mid-December brought record low temperatures to parts of the country and led to a dramatic spike in natural gas demand. The result of the cold was felt in storage inventories which had previously hit a record high above 4 Tcf in November. After two weeks of intense cold combined with a much tighter fundamental backdrop, natural gas stocks fell to a steep deficit to year-ago levels and behind the five-year average for the first time since May 2015. Given forecasts that show a return of widespread below-normal temperatures in January, it is likely that the market will be contending with at least one more stretch of historically-large storage withdrawals.
Conditions are continuing to line up that favor a higher price environment in 2017 than has been experienced since at least 2014. Storage inventories, which traditionally help dictate price levels across the country, are poised to round out the winter at a steep deficit to year-ago levels. This means that the market will need to see a much stronger injection season next summer to see stockpiles fill to healthy levels ahead of next winter. Without a strong recovery in domestic production and some level of pullback in natural gas usage from power generators, a scenario could play out that sees inventories at extremely low levels prior to winter 2017-2018. This would lead to even more upside for prices and continued market volatility.
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LOCATION
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28-Dec-16
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28-Nov-16
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29-Dec-15
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NYMEX
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$3.930
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$3.232
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$2.228
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NNG Ventura
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$3.540
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$2.645
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$1.695
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Calif. Citygate
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$3.745
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$2.810
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$2.575
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Commodity report: Conditions are lining up that favor a higher price environment for natural gas in 2017 than that experienced since at least 2014. 

Natural gas prices volatile in fourth quarter 2016

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