The following is a summary of last week’s market activity and the market outlook:

NYMEX volatility continues for the front of the curve, with steep declines last week due to forecasts for significantly warmer temperatures. While price movement last week was focused on 2014, 2015 and 2016 futures also declined. In addition, there were dramatic declines in day-ahead prices, which moved below $50/MWh for today, after trading in the hundreds just a week ago.
This morning there was a sudden reversal, with futures up by approximately 15 cents due to a change in the forecasts, which are calling for more cool temps for the East by this weekend.

Last week the EIA reported a withdrawal of 157 Bcf for the week ending Jan. 3, 2014, which was above expectations and below historicals. Current inventory is 2,817 Bcf, which is 15.8% below last year and 315 Bcf below the 5-year average. Since this Thursday’s report will cover the week ending Jan. 10, which was extremely cold, experts are calling for a >300 Bcf withdrawal, which would be much higher than last year (156 Bcf) and the 5-year average (159 Bcf).

The price pullback may have been overdue once the weather broke but that does not mean that momentum is downward going forward. It is still early in the winter, forecasts are mixed beyond this week, and the storage deficit will grow significantly after this Thursday’s storage report. The $4.00–4.45 range may make sense until there is a better view on weather and storage going into February.

While last week’s dip may have been an opportunity, this morning’s rally is a reminder that market dips may be brief. Beyond the winter, long-term prices are still in their recent price range and may still present value–-especially when you consider regional differences–-however they may not remain so during 2014.