Natural Gas Prices Bounce Back as Winter Hits the U.S.

Weather Reports Lift February Futures Amid Rising Heating Demand

February Nymex natural gas (NGG25) on Friday closed up by +0.082 (+2.08%).

On Friday, February natural gas prices rebounded after earlier declines, boosted by updated weather forecasts predicting colder temperatures across central and western U.S. regions. This change is expected to increase heating demand for natural gas. Maxar Technologies reported that forecasts shifted to a colder outlook for February 3-7.

Earlier this week, natural gas prices reached a one-year high as a cold snap swept the nation. This extreme weather led to a spike in heating demand and a reduction in inventory levels.

According to BNEF data, dry gas production in the lower 48 states was reported at 103.3 billion cubic feet per day (bcf/day), a slight decrease of -0.5% year-over-year. Meanwhile, demand increased significantly to 121.3 bcf/day, representing a rise of +33.3% year-over-year. Natural gas net flows to U.S. LNG export terminals were at 13.3 bcf/day, a decline of -12% from the previous week.

The decline in electricity output is a concerning factor for natural gas demand from utility companies. The Edison Electric Institute noted that total electricity output for the week ending January 18 dropped -7.35% year-over-year to 87,343 GWh, although electricity output over the past year increased by +1.86% to 4,181,320 GWh.

The weekly EIA report released Thursday painted a slightly bearish picture for natural gas prices. It showed that inventories fell by -223 bcf for the week ending January 17, a smaller drop than the expected -247 bcf but larger than the five-year average decline of -167 bcf for this time of year. As of January 17, inventories were up +1.3% year-over-year and +0.7% above their five-year seasonal average, indicating sufficient supplies. In Europe, gas storage levels were at 59% as of January 20, falling short of the five-year average of 67% full.

Baker Hughes reported an uptick in the number of active natural gas drilling rigs across the U.S. The count rose by one to 99 rigs for the week ending January 24, still above the 3-1/2 year low of 94 rigs recorded on September 6. Active rigs have declined from a peak of 166 in September 2022, which marked a significant recovery from the record low of 68 rigs during the pandemic in July 2020 (data spans since 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.

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