What's going on?

Natural gas � a key input for heating � plunged to a 14-year low on Monday and fell further during Tuesday�s trading. It�s another example of how low commodity prices are hurting energy companies � but possibly giving a boost to the average person�s spending power!

What does this mean?

If you live in America, you might have noticed that this holiday season is a lot warmer than usual. The temperature in New York on Tuesday was 62 degrees (or 17 degrees celsius). That, logically, sends demand for heating plummeting � which hits demand for natural gas. Commodity prices are driven by supply and demand - and the supply of natural gas is already extremely high. Much of the increase is due to new extraction technologies associated with fracking. The oversupply has already caused plummeting natural gas prices over the past few years but, combined with this winter�s warm weather, the impact this year has been dramatic (it�s down more than 30%). Amazingly, producers are not decreasing supply - instead they are ramping up production in an attempt to squeeze each other out of the market by driving down the gas price (in the hopes that there will be fewer producers when the price, in theory, recovers).

Why should I care?

The bigger picture: This could be good for people�s wallets. Less money spent on one�s heating bill is more money available to be spent elsewhere. That could be good for companies whose business is tied to the average person spending money, like Proctor and Gamble for example. For markets: It�s bad for energy stocks � and some junk bonds. A lot of US energy companies have outstanding �junk bonds� that have sold off sharply in recent weeks (their stocks have also sold off). Chesapeake, America�s 2nd biggest gas producer, is a prime example. As we wrote last week, junk bonds have done a lot worse this year than stocks (on average). It�s a divergence which will likely need to be corrected eventually, either by stocks going lower or junk bonds moving up in price (or some combination of the two).