Natural Gas Prices Rise Amid Cold Weather Forecast

March Nymex natural gas (NGH25) on Wednesday closed up by +0.107 (+3.29%).

Colder Weather Sparks Heating Demand

On Wednesday, natural gas prices increased due to predictions of colder temperatures in the U.S., which will likely drive higher heating demand. Forecaster Maxar Technologies indicated that the northern half of the U.S. might experience below-normal temperatures between February 15 and 19.

Supply Tightness Support Prices

U.S. natural gas supplies are tightening, supporting higher prices. Last Thursday’s EIA inventory report showed that as of January 24, U.S. natural gas inventories were -4.1% below the five-year average, marking the first time in two years that supplies have dipped below this average. The upcoming Thursday report is expected to reflect a further decline of -171 bcf in inventories.

Production and Demand Trends

According to BNEF, total dry gas production in the lower 48 states reached 107.2 bcf/day, showing a +1.8% increase year-over-year. In contrast, demand reached 100.7 bcf/day, which is +5.3% higher than a year ago. Liquefied natural gas (LNG) net flows to U.S. export terminals also improved, sitting at 14.7 bcf/day (+8.1% week-over-week).

Increased Electricity Output Boosts Gas Usage

Boosted electricity output in the U.S. benefits natural gas demand from utility companies. The Edison Electric Institute reported a +6.2% rise in total electricity output across the lower 48 states for the week ending February 1, reaching 81,767 GWh. Over the last year, total electricity output increased +2.5% to 4,203,156 GWh.

EIA Report Shows Larger Draw in Inventories

The previous EIA report is positive for natural gas prices, noting that inventories fell by -321 bcf for the week ending January 24, exceeding the expected decline of -316 bcf and far surpassing the five-year average decline of -189 bcf. With inventories down -3.3% year-over-year and -4.1% below the five-year average, supply is seen as constrained. On the European front, gas storage was reported at 53% full as of February 2, below the five-year average of 60% for this time of year.

Drilling Activity Trends Downward

Baker Hughes noted last Friday that the number of active natural gas drilling rigs in the U.S. decreased by one to 98 in the week ending January 31. This figure remains slightly above a three-and-a-half-year low of 94 rigs recorded in September 2022. Active rigs have steadily declined since reaching a five-and-a-quarter-year high of 166 rigs in September 2022, a stark contrast to the pandemic-era low of 68 rigs 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 information, please view the Barchart Disclosure Policy here.

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