Natural Gas Prices Drop Amid Warmer Weather and Hurricane Impact
November Nymex natural gas (NGX24) on Monday closed down by -0.138 (-5.24%).
Prices Hit a Three-Week Low
On Monday, natural gas prices fell sharply, reaching a three-week lowest level. The decline was largely driven by forecasts of warmer temperatures across the US, which are expected to decrease heating demand. Maxar Technologies indicated on Monday that temperature predictions for the Midwest and Eastern US have shifted towards warmer conditions for October 19-23. Additionally, concerns over fuel demand are also pressuring natural gas prices. Approximately 400,000 residents in Florida remain without power due to outages following Hurricane Milton, leading to reduced natural gas demand from electricity providers.
Production and Demand Statistics
According to BNEF, dry gas production in the Lower-48 states was 101.6 bcf/day, a decrease of 2.0% year-over-year. In contrast, gas demand in the Lower-48 states on Monday rose to 71.0 bcf/day, an increase of 4.8% year-over-year. US LNG export terminals also experienced heightened activity, with net flows reaching 13.1 bcf/day, up 9.2% week-over-week, per BNEF data.
Electricity Output Boosts Demand
In another positive sign for natural gas demand, US electricity output rose, driven by utility providers. The Edison Electric Institute reported last Wednesday that total electricity output in the week ending October 5 climbed by 3.58% year-over-year to 78,680 GWh. Over the 52-week period ending October 5, electricity output increased by 1.48% year-over-year, reaching 4,154,306 GWh.
Inventory Reports and Supply Levels
The latest weekly EIA report, released last Thursday, had a negative impact on natural gas prices. It showed that inventories for the week ending October 4 increased by 82 bcf, which was higher than the anticipated increase of 71 bcf yet lower than the five-year average of 96 bcf for this time of year. As of October 4, natural gas inventories were up 2.8% year-over-year and 5.1% above the five-year seasonal average, indicating a comfortable supply situation. In Europe, gas storage levels were reported as 95% full as of October 6, surpassing the five-year seasonal average of 91%.
Drilling Activity on the Decline
Baker Hughes reported last Friday that the number of active US natural gas drilling rigs fell by one, totaling 101 rigs in the week ending October 11. This figure remains modestly above the 3-1/3 year low of 94 rigs, recorded on September 6. The number of active rigs has declined from a recent high of 166 rigs in September 2022, which followed a pandemic-era low of 68 rigs in July 2020, based on historical data since 1987.
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On the date of publication,
Rich Asplund
did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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