NYMEX history and information.
Understanding the NYMEX
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What is the NYMEX?
The NYMEX, or New York Mercantile Exchange, is an organized market where tradable commodities—such as contracts on natural gas—are bought and sold.
The NYMEX is the world’s largest exchange for energy products. It handles billions of dollars in commodities each year and helps form the basis for the prices paid for these commodities.
When it comes to natural gas (and other commodities, too), the NYMEX trades on what’s known as futures contracts. These legally binding agreements ensure that the parties involved buy or sell at an agreed-upon price at a specified time in the future.
Futures contracts help protect both parties. Commodities producers get to lock in future selling prices for assets they’ve yet to produce, which provides a measure of security. And the contracts help protect commodity buyers from skyrocketing prices.
How Does the NYMEX Determine Natural Gas Prices?
Like most things bought and sold in high volume, supply and demand play a critical role when it comes to setting natural gas prices. When natural gas production is higher than the demand—perceived or actual—prices tend to fall. And when natural gas is in short supply relative to demand, prices rise.
Several key factors affect the supply side of natural gas. Hurricanes and other extreme weather conditions, for example, can halt production, which can drive the price up. Then there’s the cost of delivering and storing the natural gas, which also has an effect. And even the nation’s import and export trends can change the price.
On the demand side, weather usually plays the biggest role, as people buy more natural gas when it’s cold out to help heat their homes and businesses. But other factors such as economic growth and the availability and cost of competing energy sources play roles, too.
What's Henry Hub, and What's It Got to Do With the NYMEX?
Henry Hub is a natural gas distribution hub located in Louisiana. It serves as a connecting nexus that links some of the major pipelines throughout the U.S.
The NYMEX has been using Henry Hub, owned by Sabine Pipeline Company, as the delivery point on its contracts since 1990. Through the use of a pricing differential, NYMEX traders use Henry Hub to arrive at a settlement price each month. The pricing differential takes into account such factors as regional market conditions, transportation costs and transmission capacity.
Who Regulates the NYMEX?
The U.S. Commodity Futures Trading Commission (CFTC) monitors and regulates the NYMEX and other derivatives markets dealing in futures, swaps and certain types of options. It helps promote competitive futures markets. And it helps protect investors from fraudulent and abusive trade practices.
For more than 150 years, traders have been dealing in various types of commodities in the U.S., though most early commodities were agricultural products. In the 1920s, the federal government began regulating the markets in an attempt to prevent fraudsters from running amok.
In 1974, President Gerald Ford signed the Commodities Futures Trading Commission Act. The new commission had greater authority than the previous regulating agency, the Commodities Exchange Authority—run by the U.S. Department of Agriculture.
NYMEX Natural Gas Prices
Prices are per dekatherm. To calculate per therm values, simply move the decimal to the left one digit.