Futures, Indices, and Commodities · Calendar Spreads and Basis

Natural gas seasonality on the curve

Q: Why does the January natural gas futures contract typically trade at a premium to the October contract?

Right. The seasonal demand pattern is the entire driver. Producers can't ramp production fast enough so the market relies on stored gas — and storage runs lower as winter progresses.

Recognize the predictable annual rhythm in the natural gas futures curve — and why winter months always price higher than summer months.

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Futures, Indices, and Commodities

Calendar Spreads and Basis

Lesson 40 of 4982%

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Lesson 40 of 49Futures, Indices, and CommoditiesCalendar Spreads and Basis

Today's tiny win: make one idea click.

Recognize the predictable annual rhythm in the natural gas futures curve — and why winter months always price higher than summer months.

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The wave you can set your calendar to

Pull up a natural gas futures curve out to twenty-four months and you'll see something you don't see in any other commodity: a clean, repeating wave. Each January and February peaks higher than the months around them. Each September and October sits in a trough. Then the next January peaks again. The curve isn't drawing a forecast. It's pricing in the predictable annual pattern of US heating demand.

Why does this happen and why is natural gas the most seasonal commodity? Because gas demand is wildly different in winter than in summer, and you can't move it around as easily as oil. About half of US households heat with natural gas. When temperatures drop in December, gas demand spikes hard. Power plants also burn more gas to meet winter electricity demand for heating. Producers can't ramp production quickly enough to meet that demand, so the market relies on the gas already pumped into salt-dome storage during summer months. By January, storage is drawing down fast — sometimes scary fast in a cold winter. By March or April, storage is at its lowest point of the year and the cycle restarts.

Wick saysJanuary gas usually costs more than October because winter heating drains storage.

Wick saysEach year gas is stored in summer, drained in winter, and lowest by spring.

The seasonal premium gets sharper in years where forecasts call for a cold winter, and softer in years where forecasts call for warmer-than-average weather or excess gas inventory. Cold snaps in places like Texas can cause individual winter-month contracts to spike dramatically — the February 2021 polar vortex event saw spot prices in some regions hit unprecedented levels. But even outside extreme events, the wave pattern persists. For traders, the gas curve is the cleanest example of how a calendar — not just a price — gets priced into futures.

Wick saysIf winter months barely cost more than fall, the market may expect warmth or full storage.

Recap: natural gas has the most reliably seasonal futures curve of any major commodity. Winter months (Dec-Feb) trade at a premium to fall months (Sep-Oct), year after year, because heating demand creates a predictable storage drawdown cycle. The wave is the market pricing the calendar.

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1. Why does the January natural gas futures contract typically trade at a premium to the October contract?

2. A trader looking at the natural gas curve sees the typical wave pattern is unusually flat — winter months not much higher than fall months. What might this signal?

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