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NYMEX Natural Gas Winter Risk Premiums Likely Unsustainable

Natural gas futures recently raced to seven-year highs on increasing fears of a storage adequacy crisis. Both natural gas supply and demand are relatively price-inelastic near current levels—creating tremendous price volatility with little effect on physical market fundamentals.
Near-term cold may support natural gas into early December, but a historically mild October and resurgent gas production have reshaped the winter outlook.
Using the March-April “Widow Maker” spread as a proxy for winter risk premiums, the graphic below illustrates how the spread has fallen into contango in eight of the past ten years and slipped under 25¢/MMBtu by January every year of the past decade.
In all but the most extreme winter scenarios, a similar path is likely this year—implying significant further declines may await natural gas prices by mid-to-late winter.
The path forward, however, is likely to remain extremely volatile.

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About: EBW AnalyticsGroup has been providing independent energy market analysis and research since 2003. For nearly two decades, we have consistently been the first to call major price dislocations through our market research publications and consulting services. Our clients include commercial and industrial electricity and natural gas users, electricity purchasers, traders, power plant owners, natural gas and oil producers, retail electrical suppliers, electrical utilities, hedge funds, distressed debt investors and the general financial community.

Disclaimer: The content in this email and in our publications is for informational purposes only; it should not be construed as legal, tax, investment, financial, or other advice.

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