Natural Gas Prices Surge as Cold Weather Forecast Boosts Heating Demand

Historic Climatic Shifts Influence Market Trends

January Nymex natural gas (NGF25) on Wednesday saw a significant increase, closing higher by +0.215 (+6.80%).

On that day, natural gas prices jumped to a two-week high in response to colder weather forecasts for the eastern half of the US, leading to expectations for increased heating demand. Forecaster Maxar Technologies indicated a colder outlook for December 21-25.

Alongside the weather shift, analysts anticipate a larger-than-usual decline in US natural gas inventories. The upcoming Thursday’s weekly EIA report is expected to show a decrease of -168 bcf for the week ending December 6, notably higher than the five-year average for this period, which is -71 bcf.

Production figures revealed that the Lower-48 states generated dry gas at a rate of 104.6 bcf/day, a decrease of 1.7% from the previous year. Conversely, gas demand in these states was 104.7 bcf/day, marking a 4.4% year-over-year increase. Additionally, LNG net flows to US export terminals hit 13.8 bcf/day, reflecting a 4.3% increase from the previous week.

Moreover, rising electricity generation across the US contributes positively to natural gas demand from utility providers. The Edison Electric Institute reported that total electricity output in the Lower-48 states for the week ending December 7 rose by 10.87% from the previous year, reaching 83,412 GWh (gigawatt hours). Over the full 52-week period ending December 7, US electricity generation increased by 1.96% to 4,173,295 GWh.

Despite these positive developments, the previous week’s EIA report presented a bearish tone for natural gas prices. The inventories for the week ending November 29 fell by just -30 bcf, falling short of expectations that called for a -36 bcf draw and also lower than the 5-year average decline of -47 bcf. As of November 22, gas inventories were up by 5.9% year-over-year and exceeded the 5-year seasonal average by 7.8%, indicating sufficient gas supplies. In Europe, gas storage levels were at 82% capacity as of December 8, slightly below the five-year seasonal average of 84%.

Furthermore, Baker Hughes reported a modest uptick in the number of active US natural gas drilling rigs, which rose by 2 to a total of 102 for the week ending December 6. This figure remains above the three-and-a-half-year low of 94 rigs posted on September 6. Active rig numbers have significantly declined since they reached a peak of 166 rigs in September 2022, recovering from a pandemic-era low of 68 rigs recorded in July 2020.

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

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