Natural Gas Prices Dip Amid Mixed Inventory Data
January Nymex natural gas (NGF25) closed significantly lower on Wednesday, shedding -0.263 (-7.59%).
Mixed Inventory Reports Create Market Volatility
Natural gas prices fell on Wednesday after the EIA announced that weekly inventories had decreased by only -2 billion cubic feet (bcf), instead of the anticipated -3 bcf. As a result, current inventories are now +7.2% above the five-year seasonal average for this time of year, indicating a strong supply of natural gas.
Recent Price Rallies Driven by Global Events
Last week, natural gas prices surged to a one-year high, buoyed by an increase in European gas prices. This spike followed heightened tensions in the Ukraine-Russia conflict, particularly after Russia conducted a missile strike in Ukraine. In addition, the US imposed sanctions on Gazprombank, the last major Russian financial institution that provided gas payments for some Central European nations, further raising concerns about potential cuts to Russian gas supplies to Europe.
Production and Demand Metrics
According to BNEF, lower-48 state dry gas production stood at 103.4 bcf/day, down -1.5% from last year. Conversely, gas demand in the lower-48 states plummeted to 88.7 bcf/day, a decline of -13.6% year-over-year. Furthermore, LNG net flows to US export terminals registered at 13.1 bcf/day, a slight dip of -0.8% week-over-week.
Electricity Output Provides Demand Support
On a positive note, an uptick in US electricity generation is expected to boost natural gas demand from utility providers. The Edison Electric Institute reported that total electricity output across the lower-48 states for the week ending November 23 increased by +3.86% compared to last year, reaching 73,873 GWh. Over the 52-week period ending on the same date, output rose +1.91% to 4,168,195 GWh.
Inventory Surplus Signals Strong Supply
The latest weekly report from the EIA was viewed negatively for natural gas prices. Inventories for the week ended November 22 decreased by -2 bcf, compared to expectations of -3 bcf and a historical average decline of -30 bcf. As of that date, natural gas inventories were up +3.4% from last year, remaining +7.2% higher than the five-year seasonal average. In Europe, gas storage levels were at 87% as of November 25, slightly below the five-year average of 89% for this time of year.
Drilling Activity Remains Steady
Baker Hughes reported that the number of active natural gas drilling rigs in the US increased by one rig to 100 during the week ending November 29. This figure is a modest improvement over the 94 rigs recorded at a three-and-a-half-year low in September but significantly lower than the five-and-a-quarter-year high of 166 rigs seen in September 2022. This figure also represents a recovery from the pandemic-era low of 68 rigs in July 2020, based on data dating back to 1987.
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.
