The NYMEX Strip, or “12-month strip” is the average of the daily settlement prices of the next 12 months’ futures contracts, and is a good indicator of where natural gas prices are for the next year.
So what is the NYMEX?
The New York Mercantile Exchange (NYMEX) is the commodity exchange based in New York City where natural gas, electricity, and other futures and options are traded. Natural gas is traded in two ways: through traditional pit trading and on Globex. The traditional manner – open outcry in the NYMEX pit – takes place Monday through Friday from 9:00 a.m. until 2:30 p.m. (EST) with the exception of holidays. Globex is an electronic platform traded Sunday through Friday from 6:00 p.m. until 5:15 p.m. (EST). Globex is becoming the dominant way to trade gas. Electricity is traded in the same traditional manner, in the NYMEX pit through a specific futures broker.A natural gas futures contract is a standardized contract for the purchase or sale of natural gas for future delivery under the provisions of exchange regulations. The standard contract for natural gas at Henry Hub – a pipeline interchange near Erath, LA, and the standard delivery point for all NYMEX natural gas futures contracts – is 10,000 MMBtu, 10,000 Dth, or roughly 10,000 MCF.
Like the natural gas it represents, NYMEX natural gas futures contracts can be extremely volatile. A number of supply and demand factors can influence the trading of natural gas including the weekly US Storage activity report published on Thursdays at 10:30 a.m. by the E.I.A.. Other conditions that can affect natural gas prices are rig counts, pipeline infrastructure, geopolitical influences, alternative fuel pricing, weather and the economy.
The natural gas NYMEX Strips market has an affect on the prices of electricity contracts, though not a perfect correlation. In regions with a higher percentage of natural gas as the generation fuel source, such as the Northeast, this correlation is greater than, for instance, the Midwest, where coal is the primary fuel source. None-the-less, in the Northeast, movements in the Nymex Strips market provide a reasonable data point for decision makers procuring electricity.