Natural Gas Prices Decline Amid Warmer Weather Forecasts

January Nymex natural gas (NGF25) saw a significant drop on Friday, closing lower by -0.175 (-5.07%).

Warmer Weather Reduces Heating Demand

Natural gas prices fell on Friday due to forecasts predicting warmer weather across much of the United States, which is expected to reduce demand for heating. Maxar Technologies reported that temperatures in the Northeast could rise above normal levels between December 23-27.

Production and Demand Stats from Lower-48 States

BNEF reported that dry gas production in the lower-48 states was 105.5 billion cubic feet per day (bcf/day), a decrease of 0.4% from the same time last year. Conversely, demand for natural gas rose to 106.3 bcf/day, marking an increase of 5.6% from the previous year. Additionally, net flows to U.S. LNG export terminals were at 14.3 bcf/day, up 6.3% week over week.

Electricity Output and Its Impact on Demand

The increased electricity output in the U.S. could positively influence the demand for natural gas from utility companies. According to the Edison Electric Institute, total U.S. electricity output in the week ending December 7 increased by 10.87% year over year, reaching 83,412 gigawatt hours (GWh). Over the 52-week period ending December 7, electricity output rose by 1.96% year over year to a total of 4,173,295 GWh.

Inventories Show Significant Draws

Last Thursday’s EIA report was favorable for natural gas prices. The report indicated that inventories fell by 190 bcf for the week ending December 6, surpassing expectations of a 168 bcf decrease and significantly more than the five-year average draw of 71 bcf for this time of year. Overall, natural gas inventories were 2.3% higher year over year, and 4.6% above the five-year seasonal average, indicating sufficient supply levels. In Europe, gas storage was reported to be 81% full as of December 10, slightly below the five-year average of 83% for this period.

Shifts in Rig Counts

Baker Hughes noted a rise in the number of active natural gas drilling rigs, which increased by one to reach 103 rigs for the week ending December 13. This figure is modestly above the three-and-a-half-year low of 94 rigs recorded on September 6. Active rigs have decreased from a peak of 166 rigs in September 2022, which was a recovery from the record low of 68 rigs seen during the pandemic 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 are solely for informational purposes. For more details, please refer to the Barchart Disclosure Policy here.

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