Key Drivers

Commentary

Natural gas NYMEX is trading for the next few months at levels not seen since early 2016.  The primary reason is the warm December and January in the Midwest and Northeast.  The first half of February is forecasted to be well above normal as well.  Why is this warmth happening?  It seems that every time the Alaskan Ridge or Greenland Ridge start to form which would push cold air into the eastern half of the U.S. weather happenings in the far pacific Indian Ocean breaks down the Ridge formations and pushes the cold weather farther north and allows the jet stream to bring warmth to the area.

While people may be enjoying the warm weather in the north, the extended cold brings many environmental benefits (i.e. killing bugs carrying diseases, fruit trees that require a certain number of hours below zero in order to flower, etc.)  These warm temperatures in the winter throughout the eastern U.S. is not good long-term. Often when we have a warm January we see a late winter cold spell that lasts through March and April.  All bets are off whether that will happen this year.  Too many strange things continue to happen unexpectedly.

The fact is though that the NYMEX speculative traders (Wall Street hedge funds) are selling the market short at record levels that is pushing the next few months of natural gas NYMEX down.  History has shown over and over that when the tide turns and some extended cold does appear, the short traders reduce their positions in mass by buying into the market furiously that then pushes the market to the extreme in the opposite direction.  Will a late winter price rally occur?  What happens to pricing if we have a very warm spring and hot summer?  How high will the end of the winter season storage levels be in Europe and Asia?  How much will extremely low natural gas prices reduce U.S production levels and how soon will it happen?  Will the world continue to need U.S. LNG supplies or will demand trail off in 2020 as some forecast? Distressed natural gas prices are also disrupting power markets. Coal, nuclear and renewable generators who are not fully hedged are struggling. Talks have already begun regarding the need for a new approach to compensating renewable generators in order for new wind and solar projects to remain viable.