Front-month May natural gas futures are trading up over 20% from the February low of $3.26 per MMBtu, flirting with the top of the $3-$4 range in which prices have languished for the past year (Chart 1). The sharp rally was fueled by colder-than-normal temperatures across the US, where roughly half of homes rely on the gas for heating. When measured in Heating Degree Days (a commonly referenced measure of heating demand), the first two weeks of March have been about 3.3% colder than the average of the past five years.
This increased heating demand has been reflected in higher-than-normal withdrawals from storage, with more gas coming out of storage in each of the past four weeks relative to the same period during the past five years. Though, when viewed in the context of total gas in storage (i.e., in percentage terms), the withdrawals have been completely in line with historical norms. Market bulls have made hay about the large decline of gas in storage year-over-year, though this is misleading, because last year was an aberration (Chart 2). When measured against the five years before 2012, there is 14.1% more gas in storage for this time of year. The fact is, weather can have a short-term impact on natural gas prices, but the long-term fundamentals remain in place.