Commentary by Eric Wilder – Early December temperatures in Oklahoma were some of the coldest ever, but 2005 ended just the opposite – with record warm temperatures.  Weather wise, 2005 was a topsy-turvy year, and not just in Oklahoma.  The country experienced and continues to experience extended stretches of mild temperatures.  The result is that the U.S. is entering 2006 with ample supplies of natural gas in storage.  Why then are natural gas prices remaining near $10 per MCF?

Mild weather is only one factor in the complicated scenario of natural gas supplies.  Other factors affect pricing. 2) Higher prices have resulted in increased drilling that has also increased supply.  3) An abnormal hurricane season greatly decreased the country’s supply of natural gas.  4) Higher prices have resulted in conservation and lessened demand for natural gas.

It’s still early January and natural gas prices on the New York Mercantile Exchange are just under $10 per MCF.  What’s keeping the price high even though we seem to have ample supplies in storage?  Uncertainty.  The real price of natural gas is a complicated formula that involves four factors.  Will warm weather continue?  What’s the prognosis on the upcoming hurricane season?  If prices drop, will energy explorers keep drilling at the present rate?  Will demand continue to decline?

Savvy marketers are keeping natural gas near $10 per MCF because pricing is a complicated problem that no one, as yet, has solved.

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