Over the last two weeks, there has been a significant increase in the price of prompt month (October) natural gas. Since the beginning of the year, prompt month gas prices had been declining. That slide stopped in late August as the October gas contract was trading at $2.19/MMBtu.  At the time of this writing, the price of October gas was trading around $2.68/MMBtu, an increase of about 22%. These recent price changes in the prompt month gas contract are shown below in Figure 1.

There’s been a lot of news around the natural gas market this past month.  Most of that news has been bad for producers and good for buyers of the commodity.  Natural gas injection quantities have, as expected, been significantly stronger this summer compared to last year.  The amount of gas consumed for power generation has, in general, been in line with expectations and similar to last summer.

How much farther will natural gas prices fall?  Of course, no one really knows the absolute answer to that question.  But in the near-term, the answer may be $2.40/Dth.  Figure 1 shows the NYMEX trading history for a one-year period from August 2019 to July 2020.  One can see that futures prices declined steadily until last fall and then began to rise until March of this year.   Since then, NYMEX futures have persistently fallen from its peak of $2.91/Dth on March 21st.  The question among traders was: how low can it go?  As shown in Figure 1, the price floor for the August 2019 to July 2020 strip seems to be in the neighborhood of $2.40/Dth, which is where the market stopped falling back in the last week of June and the first week of July.  One of the reasons for the recent bearish price trend has been the large amounts of natural gas that have been put into storage. 

Like a lot of myths or half-truths, the belief that natural gas and crude prices are positively correlated (move in the same direction up or down at similar times) was at one time very true, but as technology and trends changed over time, so did this correlation. Recently, even energy traders held onto the belief that natural gas and crude oil would always trade within ratios of approximately 10:1 to 12:1. This means that if crude oil were trading at $24 per barrel, then natural gas would trade at approximately $2 per MMBtu, or in similar ratios of $36 to $3 and $48 to $4.

April 1st marked the end of natural gas withdrawal season and the beginning of injection season. The winter of 2018/19 is officially in the past and gas storage levels are at their lowest levels since the spring that followed the very cold winter of 2014.