This winter has ranked in the elite category amongst the warmest on record. The latest news release indicates that January 2012 yielded the fourth warmest January on record. According to the National Climatic Data Center (NCDC), all but two states across the contiguous U.S. experienced warmer than normal temperatures during the month of January. Illinois is experiencing its 6th warmest winter on record and as many as nine states experienced a January that ranked in the top 10 warmest. Natural gas is an energy commodity that is heavily impacted by weather. This unusually mild winter has resulted in a massive decrease in home heating demand and industrial fuel. Currently, the U.S. natural gas market is sitting near $2.50 per million British thermal units (MMBtu), close to the bottom of a 10-year price chart.
There is practically no argument that natural gas is one of the most maddening and exigent commodity investments in the market due to its rapid price swing tendencies.
But with the recent price collapse in natural gas prices down to 10-year lows, for those who have eagerly watched and waited for an entry point into natural gas, the time may be close at hand to jump into this market. After all, as the price falls lower, the more attractive the market becomes, because it increases the chances of some nice upside potential.
Investing in natural gas, however, hasn’t been an easy task over the last few years. Mother Nature hasn’t provided much of a challenge for the market in terms of demand for the fuel, and there haven’t been any major hurricanes in the Gulf of Mexico that has disrupted significant amounts of supply since 2008, which produced Hurricanes Gustav and Ike.
So far, the first month of 2012 has proved to be despondent for natural gas, as much of the country’s mild weather has perpetuated low demand for the fuel.
Even with the bouts of short-lived cold shots, temperatures have been principally at well-above average levels for most of the country for this time of year. And even if portions of February and March produce some below normal temperatures throughout the U.S., it’s clear that the amount of U.S. natural gas storage will not be able to avoid ending the winter with less than 2 trillion cubic feet of supply in the ground. This is a major near-term bearish scenario.
As we all know, however, Mother Nature can certainly throw curveballs when it comes to demand for the home heating and industrial fuel in the winter, summer, and hurricane seasons. A series of unusually cold winters, or exceedingly hot summers, or another active hurricane in the Gulf of Mexico could throw the supply/demand balance out of equilibrium and be a winner for natural gas investors. With the current La Nina expected to flip to an El Nino this spring, the ramifications on U.S. temperatures and thus the natural gas market is potentially enormous.
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