US Natural Gas Prices Dip Amid Mixed Weather Forecasts

Supply Tightness and European Market Strength Offer Support

March Nymex natural gas (NGH25) on Friday closed down by -0.099 (-2.90%).

On Friday, natural gas prices in March saw a slight decline as a mixed weather forecast across the US triggered some selling in futures contracts. According to WSI Trader, weather predictions turned colder for many areas in the central and eastern US, while Western North America is projected to have warmer temperatures from February 17 to 21. Despite the downturn in US prices, strength in European natural gas markets, which reached a 15-month high, helped limit the losses.

Tight US natural gas supplies are currently supporting prices. The weekly EIA inventory report released on Thursday indicated that US natural gas inventories as of January 31 were -4.4% below the five-year average, marking the widest deficit seen in over two years.

The production of dry gas in the Lower 48 states rose to 107.5 bcf/day, reflecting a +1.0% year-over-year increase, according to BNEF. Meanwhile, gas demand across the Lower 48 states reached 98 bcf/day, which is a +6.9% increase compared to last year. LNG net flows to US export terminals dropped to 14.5 bcf/day, showing a -2.3% weekly decline, as reported by BNEF.

Increased electricity generation in the US is beneficial for natural gas demand from utility providers. The Edison Electric Institute noted that total electricity output in the Lower 48 states rose by +6.2% year-over-year to 81,767 GWh for the week ending February 1. In the 52-week period ending on the same date, US electricity output climbed +2.5% year-over-year to 4,203,156 GWh.

The EIA’s report on Thursday suggested an optimistic outlook for natural gas prices, revealing a drop of -174 bcf in inventories for the week ending January 31. This decline was deeper than the anticipated -171 bcf and matched the five-year average draw for this part of the year. By January 31, natural gas stocks were down -7.2% year-over-year and -4.4% below their five-year seasonal average, which reflects a tight supply situation. In contrast, Europe’s gas storage was 51% full as of February 4, which is below the five-year seasonal average of 59% full for this time of year.

Baker Hughes reported on Friday that the number of active natural gas drilling rigs in the US increased by +2 to reach 100 rigs for the week ending February 7. This figure is slightly above the 3.5-year low of 94 rigs recorded on September 6. Active rigs have decreased from a high of 166 rigs in September 2022 and are still above the pandemic-era record low of 68 rigs set in July 2020, based on data since 1987.

On the date of publication, Rich Asplund did not hold (either directly or indirectly) any positions in the securities mentioned in this article. All information and data are provided solely for informational purposes. For more information, please view the Barchart Disclosure Policy here.

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