Liam Denning is a Bloomberg Gadfly columnist covering energy, mining and commodities. He previously was the editor of the Wall Street Journal's "Heard on the Street" column. Before that, he wrote for the Financial Times' Lex column. He has also worked as an investment banker and consultant.

Betting on a rally in oil right now requires a lot of faith in OPEC ministers having an informal set of talks next week that might tee up some formal discussions that could potentially lead to a decision by which some members actually abide (maybe).

In contrast, natural gas prices, the perennial sickly cousin of crude, look unusually sprightly. Since the end of March, the benchmark U.S. gas price is up by 48 percent. Oil, meanwhile has eked out a gain of just 15 percent and, unlike gas, has been meandering downward since early June.

So Cool It's Hot
Blasting air conditioners have stoked demand, and prices, for natural gas
Source: Bloomberg
Note: Generic 1st month futures contract price performance, indexed to 100.

Gas has been enjoying the summer heat (think millions of air-conditioners being powered by gas-fired electricity). And even if summer must eventually come to an end, there are some encouraging signs of gas, weighed down by a glut even worse than the oil market's, finally dealing with its excess of supply.

One way of looking at this is to track injections, or how much gas is being put into storage in preparation for winter. "Injection season" -- the energy sector has some wonderful jargon -- typically lasts from around the end of March to around the start of November. Here's how this year is shaping up versus prior ones:

Shots Down
Gas injections in 2016 are running at about half the pace of two years ago and in line with 2012
Source: Energy Information Administration
Note: Cumulative build through 23 weeks since the end of March.

Apart from your overworked A/C unit, idled rigs have helped to curb the gas market's excess. U.S. natural gas production has been falling since March, when looked at on a trailing 12-month basis to smooth out seasonal swings:

Vapor Trailing
U.S. gas production has begun to roll over after surging through 2014 and 2015
Source: Energy Information Administration
Note: Trailing 12-month average.

If you look at both charts, you'll notice 2012 offers the nearest parallel. Natural gas prices collapsed that year, averaging $2.83 per million British thermal units, versus $4.03 in 2011, according to Bloomberg data, due in part to a mild winter in 2011/12.

The weaker build-up of gas inventory in 2012 supported prices -- including spikes triggered by the more-severe winter of 2012/13 -- which saw Hurricane Sandy rear its head -- and the "polar vortex" of 2013/14. The 32 percent jump in average gas prices in 2013 segued into a 14 percent increase the following year.

It's a fair bet, therefore, that those cheery souls running gas production firms are whispering the odd prayer for a face-rippingly white Christmas this year. If this was Game of Thrones, they'd be siding with those frosty White Walker chaps right about now.

Inventories are now just 9 percent above the five-year average, compared with a 54 percent gap at the start of April. Producers have good reason to think a few blizzards could squeeze out the excess altogether and get gas prices sustainably above $3 per million British thermal units by late 2016 or early 2017. So far this year, they've averaged $2.31 and currently stand at $2.92.

Now for the "but."

First off, it says something that $3 carries a totemic significance these days, a sign of how battered this gas market is. That should temper hopes of a sustained recovery. Look back again to those gains in 2013 and 2014; they helped touch off another big surge in U.S. gas output, thereby sending prices into a tailspin again.

It's worth noting that, while average gas futures for 2017 and 2018 are up 15 percent and 7 percent, respectively, compared with 6 months ago, prices further out haven't really moved. The structural burden of shale remains, with near-term threats -- such as increased oil drilling in the Permian basin throwing off associated gas -- and longer-term ones, such as Apache's recent announcement of another potentially huge gas discovery in west Texas.

This makes it hard to bank on gas rallies lasting very long -- which is perhaps why gas-focused E&P stocks have sat out the summer rally to a large degree:

Sitting It Out
Gas-focused E&P stocks haven't joined in the summer party in the commodity market
Source: Bloomberg
Note: Stocks index is a custom, market-cap weighted basket consisting of Antero Resources, Chesapeake Energy, Cabot Oil & Gas, Encana, Eclipse Resources, EQT, Rice Energy, Range Resources and Southwestern Energy.

The silver lining? If winter really does dump on all of us, then that cautious performance in E&P stocks offers room for some seasonal cheer.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Liam Denning in New York at

To contact the editor responsible for this story:
Mark Gongloff at