Natural Gas Prices Fall Due to Warm Weather and Inventory Surge
Nymex natural gas for December (NGZ24) saw a significant decline on Thursday, closing down by -0.138 (-4.85%).
Weather and Supply Impact Prices
Prices dropped sharply due to unusually warm weather across the US and a larger-than-usual increase in natural gas supplies. This week, forecasts indicated that temperatures would remain higher than normal, reducing the need for heating. The Commodity Weather Group announced a shift towards warmer temperatures for most of the US from November 5-9.
Weekly Inventory Report Shows Higher Supplies
The natural gas market faced additional pressure as the Energy Information Administration (EIA) reported a rise of +78 billion cubic feet (bcf) in weekly inventories, surpassing the five-year average increase of +67 bcf.
Production and Demand Trends
According to BNEF, dry gas production in the lower-48 states decreased to 101.1 bcf/day, a decline of 2.4% year-over-year. Demand also fell, registering at 71 bcf/day, down 20.2% compared to last year. Interestingly, liquified natural gas (LNG) exports to US terminals improved, with net flows reaching 13.1 bcf/day, an increase of 5.42% week over week.
Electricity Generation and Its Effects
Nevertheless, an uptick in US electricity production could stimulate natural gas demand from utilities. The Edison Electric Institute reported that electricity output rose by +0.11% year-over-year to 71,417 GWh for the week ending October 26. Over the past year, total electricity output grew by +1.62% to approximately 4,160,833 GWh.
Overall Market Sentiment
Thursday’s EIA report delivered mixed signals for natural gas prices. While inventories rose by +78 bcf, which was lower than the expected +83 bcf but still above the five-year average, supplies were reported to be +2.2% higher than last year and +4.8% above the seasonal average. In Europe, gas storage facilities were reported to be 95% full as of October 29, slightly above the five-year seasonal average of 93%.
Drilling Activity Sees Minor Increase
Baker Hughes reported a modest rise in the number of active US natural gas drilling rigs, which increased by +2 to a total of 101 rigs for the week ending October 25. This is a slight uptick from a 3-and-a-half-year low of 94 rigs recorded on September 6. In comparison, active rigs have decreased significantly from a five-year peak of 166 rigs in September 2022, following a historic low of 68 rigs during the pandemic in July 2020, based on 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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