It looks like déjà vu all over again for natural gas traders, as the coming winter has already had a mild start. With warmer than usual temperatures thus far in December, NG has taken a hit even though it has been looking to recover from last year’s winter, which wreaked havoc on prices. It started with a warm forecast for the first 10 days of December, but the warm weather has stuck around and seems to be persisting for the month [for more natural gas news and analysis subscribe to our free newsletter].
“Recent data from Weather Derivatives show that heating demand will be 34 percent below average for the 48 contiguous states from Dec. 4 through Dec. 8. The forecast for lower demand has seen prices for natural gas fall 5.2 percent in the past week,” writes Marketwire.
Thus far in 2012, natural gas is down over 20% despite making a massive rally during the summer. While it may not be ideal for long-term investors, traders have been all over NG instruments like the United States Natural Gas Fund (UNG) as its volatile price movements have been perfect for short-term positioning. Still, the majority of the market would like to see some normalcy returned to NG markets in the coming year [see also UNG's Woes Visualized].
The only silver lining for NG is the fact that the coming winter as a whole is predicted to be much colder than last year, leaving room for this fossil fuel to make a run. If temperatures were even to drop to average levels, there is a good chance that prices will soar as demand will have already done the same. So while this energy commodity may be looking bleak for now, there are certainly opportunities on the horizon. Keep an eye on NG in the coming weeks as forecasts and inventory reports will be especially crucial to its movements.
Disclosure: No positions at time of writing.