Commodities course · Section 3: What Moves Gold, Oil, Gas and Grains
Natural Gas Trading: Storage Reports, Weather and Seasonality
Why natural gas is one of the most volatile commodities, how the weekly EIA storage report and weather forecasts drive it, and how seasons shape the curve.
Intermediate6 min read·7:28 video·Lesson 14 of 26·quiz: 5 questions
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US natural gas futures, priced at the Henry Hub in Louisiana and traded on NYMEX as NG, are driven by weather, storage and production, and they are among the most volatile commodity markets. The weekly EIA storage report every Thursday and changing weather forecasts can move prices by several percent in hours. Because gas is costly to store and demand peaks in winter, the futures curve has a strong seasonal shape that you must understand before holding any position.
The basics
- Contract: NYMEX Henry Hub Natural Gas (NG), 10,000 MMBtu per contract.
- Price unit: US dollars per million British thermal units (MMBtu). A move of $0.001 (one tick) is worth $10 per contract, and a move of 10 cents is worth $1,000.
- Delivery: physical, at the Henry Hub pipeline interconnection in Louisiana.
Henry Hub is the US benchmark. Europe and Asia have their own gas benchmarks, such as the Dutch TTF hub in Europe and the JKM benchmark for liquefied natural gas (LNG) delivered to North Asia. US prices are now linked to world prices through LNG exports, but the markets can still diverge widely.
Demand: weather first
Natural gas heats homes and offices in winter, generates electricity (including for air conditioning in summer), powers industry and is exported as LNG. Weather is the biggest swing factor, measured with degree days:
- Heating degree days (HDD): 65°F minus the day's average temperature, when the average is below 65°F.
- Cooling degree days (CDD): the day's average temperature minus 65°F, when the average is above 65°F.
Example
A winter day with an average temperature of 40°F has 65 - 40 = 25 HDD. A summer day averaging 85°F has 85 - 65 = 20 CDD. A forecast that adds many HDDs across the populous US Northeast and Midwest is bullish for gas.
Traders watch weather models, such as the US GFS and the European ECMWF, for the next 6 to 15 days. A colder or hotter shift in the forecast can move prices before any gas is actually burned.
Supply: production, LNG and storage
US gas comes largely from shale regions such as Appalachia (Marcellus), the Permian Basin in Texas and New Mexico, where gas is produced alongside oil, and the Haynesville in Louisiana and Texas. Production changes slowly, but pipeline constraints and freeze-offs (wells shutting in extreme cold) can cut supply suddenly.
LNG exports have become a major source of demand; the United States became the world's largest LNG exporter in 2023. When an export plant goes offline, more gas stays at home and US prices can fall. For example, after a fire shut the Freeport LNG export terminal in Texas in June 2022, US gas prices fell sharply.
Storage and the weekly report
Gas is injected into underground storage in the warmer months, roughly April to October, and withdrawn in the colder months, roughly November to March. The EIA's Weekly Natural Gas Storage Report, released on Thursdays at 10:30 a.m. New York time (shifted around US holidays), shows the change in working gas in storage in billions of cubic feet (Bcf).
Traders compare the number with:
- the consensus expectation from analysts' surveys,
- the same week last year,
- the five-year average for that week.
Example
The consensus expects an injection of 80 Bcf. The report shows 65 Bcf. Less gas went into storage than expected, so demand was stronger or supply weaker: a bullish surprise. If total storage is also below its five-year average heading into winter, the market may worry about shortages and add a larger premium.
Seasonality and the futures curve
Because winter demand is predictable, the futures curve builds it in. Winter contracts (December to February) usually trade above summer contracts. The spread between the March and April contracts, the last month of winter withdrawals versus the first month of injections, is famous for violent moves and is nicknamed the "widowmaker".
Two consequences follow:
- Seasonality is already in the price. Buying January gas in summer because "winter is coming" means paying a price that already expects winter. You profit only if winter turns out colder, or storage tighter, than the market expects.
- Contango hurts long-only rolling. Through much of the year, each contract is cheaper than the next, so rolling long positions pays a cost, explained in the contango and backwardation lesson.
Why natural gas is so volatile
- Short-run demand barely responds to price: if it is freezing, people heat their homes.
- Supply cannot ramp up quickly, and storage capacity is limited.
- Weather forecasts change daily, and prices jump with them.
- Single events, such as an LNG plant outage or a severe cold snap like Winter Storm Uri in February 2021, can shift the balance suddenly.
Natural gas is often several times as volatile as gold. A daily range of 5% of the price is not unusual.
Trading natural gas safely
Example
Natural gas is at $3.000 with an ATR of $0.150 (5% of price, illustrative). A stop at 2 x ATR is $0.300 away, which on one full NG contract is 0.300 x 10,000 = $3,000 of risk. On a $50,000 account risking 1% ($500), that is 0.17 of a contract: you cannot trade even one full contract within plan. With a CFD quoted per MMBtu, the size would be 500 / 0.300 = about 1,667 MMBtu, a position worth only about $5,000. Compare gold: with the same $500 risk and a $120 stop, you could hold about 4.2 ounces, worth about $16,700. The more volatile market gets the smaller position.
Practical rules:
- Check whether a smaller natural gas contract is available from your exchange or broker, and its liquidity, before trading full contracts.
- Avoid opening positions just before the Thursday report; if you hold through it, size so a large surprise is survivable.
- Never hold an expiring contract near its last trading day, three business days before the delivery month begins.
- Follow the natural gas chart and trend on the DanioX commodity market page and its signal on the commodity signals page.
Risk
Natural gas has destroyed many over-leveraged accounts. Moves of 10% or more in a day happen, and weekend weather changes can gap prices at the Sunday open. Treat it as the most dangerous market in this course until you have experience.
Key takeaways
- US natural gas futures (NYMEX NG) are priced at the Henry Hub in Louisiana in dollars per MMBtu, 10,000 MMBtu per contract.
- Weather drives demand: heating degree days in winter and cooling degree days in summer.
- The EIA storage report every Thursday at 10:30 a.m. New York time moves prices on the surprise versus expectations.
- Storage is filled roughly April to October and drawn down roughly November to March, which shapes a seasonal futures curve.
- Natural gas is often several times as volatile as gold, so positions must be much smaller in money terms.
Quiz: check what you learned
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