Natural Gas Prices Dip as Weather and Global Events Shift Demand

December Nymex natural gas (NGZ24) fell sharply by -0.229, representing a decline of -7.41% on Monday.

Warmer Weather Reduces Heating Demand

On Monday, natural gas prices dropped due to forecasts indicating warmer-than-normal temperatures across the U.S., which are expected to decrease heating needs. Maxar anticipates above-normal temperatures in the U.S. from Nov 7 to 19, with mixed conditions expected from Nov 2 to 6, where slightly below-normal temperatures are predicted in the West, while the East experiences above-normal warmth.

European Gas Prices Impact U.S. Market

U.S. natural gas prices were further affected by a more than -2% decrease in European gas prices. This decline followed relief that Israel’s recent military actions against Iran were limited, suggesting a possible pause in direct confrontations between the two nations.

Production and Demand Trends

According to BNEF, natural gas production in the lower 48 states on Monday was recorded at 102.9 billion cubic feet per day (bcf/day), a minor decline of -0.3% compared to the previous year. Meanwhile, gas demand in these states increased to 72.6 bcf/day, marking a rise of +6.2% year-over-year. On Friday, LNG net flows to U.S. export terminals reached 13.2 bcf/day, an increase of +5.7% week-over-week.

Electricity Production Boosts Natural Gas Demand

Growth in U.S. electricity output positively influences natural gas demand from utility companies. Data from the Edison Electric Institute showed that the total electricity output for the lower 48 states rose by +2.59% year-over-year for the week ending October 19, reaching 70,893 GWh. Additionally, annual output over the 52-week period ending October 19 increased by +1.68%, totaling 4,160,757 GWh.

Inventory Trends and Market Outlook

The latest EIA report, released last Thursday, indicated a bearish outlook for natural gas prices. For the week ending October 18, inventories rose by +80 bcf, surpassing expectations of +68 bcf and exceeding the five-year average increase of +76 bcf during this season. By October 18, inventories were up +2.3% year-over-year and were +4.6% higher than the five-year seasonal average, indicating robust natural gas supplies. In Europe, gas storage levels hit 95% capacity as of October 22, above the five-year average of 92% for this period.

Drilling Activity Shows Signs of Recovery

Baker Hughes reported an uptick in U.S. natural gas drilling rigs last Friday. The active rig count rose by +2 to 101 rigs for the week ending October 25, slightly above the 3-1/3 year low of 94 rigs recorded on September 6. Rig counts have decreased since peaking at 166 rigs in September 2022, a significant increase from the pandemic-era low of 68 rigs in July 2020, based on data dating back to 1987.

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On the date of publication,
Rich Asplund
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