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December 7, 2021

Mild Start to Winter Giving Natural Gas Prices a Break

By Jeff Bolyard, Vice President, Commodity Strategy

This post by Jeff Bolyard, Vice President, Commodity Strategy, will be featured in our upcoming December 2021 Monthly Monitor, which includes articles and analysis for the natural gas, electric, crude oil, and sustainability markets. To sign up for the Monthly Monitor distribution list, click here. To download past issues, click here.

If we could turn back the hands of time two months to gauge the overall feel in the natural gas market on pricing, there would be significant concern that the already soaring prices were only going higher. On Oct 5, the November-March winter strip was trading at $6.35/ MMBtu, storage inventories were at a 586 Bcf deficit from last year. and production had been flat all summer. The weather in October ended up feeling more like May and according to NOAA (National Oceanic and Atmospheric) data, had 105 fewer heating degree days for gas home heating than in October 2020.

Mild November weather provided yet another reprieve to the gas market, allowing storage levels to significantly close the year-on-year (YOY) deficit by 269 Bcf. While the dead of winter has yet to arrive, the impact on natural gas futures during this early winter heat wave has calmed fears that there will not be enough natural gas to get through winter, and even optimism that the November NYMEX settlement of $6.202 / MMBtu price was nothing more than a bad dream when the December contract settled last week $0.684 lower @ $5.518 /MMBtu.

While those on the periphery of the natural gas market may have only seen the resulting $0.684 drop, those monitoring the daily price moves realize the extreme volatility that now exists in the natural gas market. The chart below shows the daily price change of the December 2021 NYMEX futures contract since the start of this year:

As can be seen in the highlighted section, the daily price swing of the December contract proved to have extreme price movements over the past three months. There were 26 trading days during a short span when the price change from the previous day varied more than $0.20/MMBtu, and four days when that delta was greater than $0.50/MMBtu. So, while the price direction was down over the past two months and was driven by very mild weather, the pathway to get there was not at all smooth. If you think $0.20 – $0.50 daily swings in futures pricing are extreme, consider the risk involved in the spot market when winter finally arrives. Keep in mind that recent settle for the December 2021 contract @ $5.51 was still $2.62 higher than the same month last year.

If you have not budgeted for that YOY increase or are not comfortable with the current procurement strategy and contract structure, please reach out to your Edison Energy Manager.

Contact Edison Energy today to learn more!

Jeff Bolyard

Vice President, Commodity Strategy

I work with our clients and the Edison supply team to develop procurement strategies for energy commodities and match the strategy to the risk our clients wish to keep or shed.

Prior to my various roles at Edison, my broad experience while working for a FERC regulated interstate pipeline, my time at a deregulated marketing company, and my exposure to purchasing physical production has enabled me to understand the complex nature of the energy market and interpret the signs of this constantly changing market for our most complex clients.

Educational Background

B.A. in Accounting - Mount Vernon Nazarene University