Natural Gas

Prices and temperatures:The front-month natural gas contract for delivery at Henry Hub declined 23 cents per million British thermal units (MMBtu) from December 1 and settled at $3.27/MMBtu on January 5 (Figure 4). The monthly average natural gas spot price in December increased $1.04/MMBtu from the November average.

Both natural gas futures and spot prices rose in early December because of forecasts of much colder-than-normal weather for mid-December. However, these factors affected spot prices (which represents the price for very near-term delivery) more than they affected futures prices. U.S. heating degree days (HDD) averaged 23 HDD above normal for the two weeks ending December 22, which contributed to higher natural gas demand and the largest December net inventory withdrawal since 2013, putting upward pressure on prices towards the end of the month. The January futures contract expired on December 28 at the monthly high of $3.93/MMBtu, the highest front-month futures price settlement since December 2014. With the front-month contract moving to February delivery and weather models showing a generally warmer outlook in the eastern part of the country than previously expected, futures prices again declined in the first week of 2017. The wide range in prices in December and early January shows the influence of changing weather forecasts in a market with tightening supply and demand fundamentals.