Understanding the NYMEX

Below, you’ll find a monthly breakdown of the NYMEX historical settle prices dating back to 2016.

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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.

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, the 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.

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 for natural gas each month. The pricing differential takes into account such factors as regional market conditions, transportation costs and transmission capacity.

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.

Early U.S. Exchanges

In the U.S., trade markets first started in Chicago. The city, founded in 1830, was built on a water transit hub—Lake Michigan—and was (and is) close to America’s agricultural heartlands. It also had a strong network of railroads. Chicago quickly established itself as the primary center of trade in the U.S.

In 1848, The Chicago Board of Trade (CBOT) opened its doors for business. It was the nation’s first exchange and, in the beginning, dealt almost entirely in agricultural products and livestock. By 1865, it formalized grain trading with the creation of the world’s first futures contracts.

Throughout the later 1800s and early 1900s, more than 1,600 commodity marketplaces sprang us across the U.S.—from California to New York and everywhere in between.

Birth of the NYMEX

In 1872, in an effort to create standards for dairy products, a group of New York dairy merchants created the Butter and Cheese Exchange of New York. Not long afterward, eggs were added to the list, and the exchange was renamed the Butter, Cheese and Egg Exchange.

By 1882, as these merchants saw the need to add more items to the list of commodities, the exchange was renamed the New York Mercantile Exchange.

The NYMEX Says Goodbye to Potatoes

For a long time, potatoes made up a huge part of NYMEX trading. But that changed in the late 1970s as Maine potato baron J.R. Simplot and a few NYMEX traders—both working to scam and manipulate the potato market—went head to head in what’s now known as the Great Maine Potato War.

In the end, as Simplot and traders all plotted against each other, 100 million pounds’ worth of contracted potatoes went undelivered. The contracts went into default, and many investors lost out big. The NYMEX suffered a hard blow to its reputation—not that it was all that sparkling in those days—and it got out of the potato trading business and shifted its attention to the energy market.

It was slow going at first. But by 1978, the NYMEX had successfully ventured into trading heating oil, crude oil, gasoline and natural gas.

The NYMEX Merges and Goes Electronic

Holding onto tradition, the NYMEX functioned as an open outcry trade exchange until the early 2000s. Under this type of setup, traders would meet on an open floor—or pit—and make exchanges with a system of shouting and elaborate gestures. But as other commodity exchanges began turning to electronic trading, the NYMEX began to lose business.

In 2006, the NYMEX teamed up with the Chicago Mercantile Exchange (CME) and began transitioning toward electronic trading—two years later, CME Group acquired NYMEX’s holdings when NYMEX went public and was listed on the New York Stock Exchange.

By 2016, under the CME Group umbrella, which also includes CBOT and COMEX, the NYMEX went completely electronic.