On balance, speculators in natural gas markets have generally preferred to purchase contracts with expectations that prices will increase, rather than selling short, anticipating that prices will decline. A review of historical futures volumes indicates that speculators tend to substantially increase their open positions during periods of increasing gas prices, and reduce their net open position during periods of declining prices. The difference between long and short positions held by speculators is known as the net open interest. This difference has the effect of increasing demand for gas contracts during periods of rising prices and decreasing demand during periods of falling prices, potentially amplifying price swings in the market. In the short term, prices rise or fall based on perceived shortages or surpluses arising from the interplay of the principal driving factors.
Expectations move gas prices short term.
Longer term, prices need to be sufficient to stimulate development of additional natural gas reserves. Over the last decade, the long-term factors influencing gas prices have largely offset one another. Growth in demand has been offset by development of new resources, reductions in finding and production costs, and improvements in production, transmission, and distribution efficiency. In the long term, natural gas price levels react to the fundamentals driving supply and demand.