Natural Gas Prices Dip Amid Supply Boost and Weather Changes

Unexpected Inventory Rise Pushes Prices Down

December Nymex natural gas (NGZ24) closed down by -0.054 (-1.97%) on Thursday. Prices of natural gas fell as the Energy Information Administration (EIA) announced that for the week ending November 1, supplies increased by +69 bcf, exceeding the anticipated +68 bcf and significantly higher than the five-year average of +32 bcf for this period. Additionally, a mixed weather forecast that predicts cooler temperatures in the eastern U.S. versus warmer conditions in the west added to the pressure on prices.

Production and Demand Trends

According to BNEF, dry gas production in the lower 48 states on Thursday stood at 100.2 bcf/day, a decline of 4.5% year-on-year. In contrast, gas demand from this region was reported at 78.8 bcf/day, which marks a 6.4% increase compared to the previous year. Meanwhile, net flows of LNG to U.S. export terminals decreased by 2.4% week-on-week to 12.7 bcf/day.

Electricity Output Boosts Demand

An increase in electricity generation contributes positively to natural gas demand from utility companies. The Edison Electric Institute revealed that total electricity output in the lower 48 states for the week ending November 2 grew by 1.24% year-on-year, reaching 73,690 GWh. Notably, the electricity output over the past 52 weeks increased by 1.56% year-on-year to a substantial 4,161,739 GWh.

Room for Ample Supplies

The EIA’s weekly report indicated a bearish outlook for natural gas prices. With inventories rising to +69 bcf for the week ending November 1, they were not only above the expected figure but also showed a year-on-year increase of +4.2% and were +5.8% above the five-year seasonal average. As of November 3, European gas storage was 95% full, exceeding their five-year average of 93% full for this period.

Shifts in Drilling Activity

Baker Hughes reported an increase in the number of active U.S. natural gas drilling rigs, which rose by one to a total of 102 rigs for the week ending November 1. This figure is slightly above the three-and-a-half-year low of 94 rigs recorded on September 6. The active rig count has notably decreased from a five-year high of 166 rigs in September 2022, which was a recovery from a record low of 68 during the pandemic in July 2020.

More Natural Gas News from Barchart

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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.