NYMEX Expires 17.8 Cents Lower

The December gas futures contract settled on Monday at $3.364, approximately $0.17 lower than it was trading on Friday.

The new prompt month, January settled $0.14 lower yesterday at $3.525. Currently the January gas futures contract is trading at $3.61. By comparison, the 12 month strip is trading at $3.80/MMBtu and this year's winter strip (Jan 12 - Mar 12) is trading at $3.62/MMBtu.

Market Conditions Reflect Supply and Uncertainty

During the winter months, you would typically expect that since demand for natural gas is much higher and supply is decreasing, the prices for natural gas should therefore be at a premium.

However, the current market conditions have consistently priced winter gas futures contracts at lower prices than the summer.

According to Citi Futures Perspective Analyst Tim Evans, the current market conditions reflect the assumption that "there will be an abundance of gas at all times that will need to be carried, with the higher future price helping to finance the cost of that."

According to a Director at Barclay's Capital, the current oversupply condition and the fact that 2012 is expected to reach even higher storage levels, is "wiping away winter premiums for this and next winter."

More Gas, Less Wells.

Considering the unprecedented growth in production of natural gas, particularly in the Marcellus Shale region of Pennsylvania, it may be hard to believe that there are actually over 30% less natural gas wells currently in the state than there were in 2005.

In Pennsylvania, the number of Marcellus wells has increased from 2 to almost 1,500 from 2005 to 2010; however the number of non-Marcellus wells has dropped from over 3,600 to under 1,400 over the same time period.