The following report is part of Stratas Advisors’ Long-Term Price Outlook, Short-Term Price Outlook and Executive Dialogue services.

As oil has borne the brunt of market interest, natural gas prices have begun an unexpected spring rally due to colder than expected temperatures and declining production. While they still remain very low (below $2/MMbtu), Henry Hub prices have risen by 30% over the last 30 days.

With storage levels remaining at a seasonally adjusted five-year high, the recent price rally has called attention to the sensitivity of natural gas prices to changing market conditions─even in a situation of oversupply. The decline in drilling activity on the oil and NGL sides has begun to dent associated and wet gas output, which is likely to put some pressure on oil prices throughout the rest of 2016.

Some key factors that Stratas Advisors will be watching going into the summer injection season are weather and gas production.

Weather

By far the largest and most difficult factor to predict continues to be weather. Just as we have seen unseasonably cold weather impact pricing in the shoulder season, so too will it be the chief driver of pricing swings as we enter the summer months.

As the US has continued to reduce its dependence on coal over the last 18 months through both economically and environmentally driven coal retirements, the price of gas and its sensitivity to summer peak power demand will be more exposed to heat waves than ever before. This exposure could reduce injection rates and limit the volume of gas available for winter withdrawals.

Gas Production

Production of natural gas has been falling since early January and is likely to continue as oil prices remain low. While there will likely be some rig deployments back into the drier, gassier formations, that is not likely to happen until prices rise above $3/MMbtu. In the meantime, however, we will be watching the impact of slowly falling supply on weekly stock levels and prices.