Natural Gas Prices Rise Amid Cold Weather Forecasts and Tight Supplies

March Nymex natural gas (NGH25) on Thursday closed up by +0.048 (+1.43%).

Cold Weather Predicted to Boost Heating Demand

On Thursday, March natural gas prices experienced moderate gains due to forecasts indicating colder-than-normal temperatures in the U.S. These expected chilly conditions are likely to drive up heating demand for natural gas. The Commodity Weather Group noted that forecasts for February 6-20 shifted to show much of the U.S. experiencing colder weather. Additionally, the weekly EIA report released Thursday supported the upward trend in natural gas prices by revealing that inventories fell by -174 billion cubic feet (bcf), surpassing the anticipated draw of -171 bcf.

Tight Supply Conditions Favor Price Increases

The tightness in U.S. natural gas supplies is providing significant support for prices. As reported in Thursday’s EIA inventory update, natural gas inventories as of January 31 stood at -4.4% below the five-year average, representing the largest deficit in over two years.

Production and Demand Trends

According to BNEF, total dry gas production in the lower 48 states reached 106.8 bcf/day on Thursday, marking a year-over-year increase of +1.7%. Meanwhile, gas demand also rose, with the lower 48 states consuming 97 bcf/day (+1.2% y/y). Notably, LNG net flows to U.S. export terminals hit 15 bcf/day, reflecting an 11.2% increase week-over-week.

Rising Electricity Output Further Supports Natural Gas Demand

Electricity output in the U.S. has shown an increase, which is positive news for natural gas demand from utility companies. The Edison Electric Institute reported that total electricity output for the lower 48 states rose by +6.2% year-over-year to 81,767 gigawatt-hours (GWh) for the week ending February 1. For the 52-week period ending February 1, total electricity output rose +2.5% to 4,203,156 GWh.

International Context and Rig Count Trends

Further affirming the bullish sentiment, Thursday’s EIA report highlighted that natural gas inventories decreased by -174 bcf, closely aligning with the five-year average draw for this time of year. Inventories were down -7.2% year-over-year and -4.4% below the five-year seasonal average, underscoring the tight supply situation. In Europe, gas storage levels were recorded at 51% full as of February 4, which is below the five-year average of 59% for this period.

Additionally, Baker Hughes reported that the number of active drilling rigs for U.S. natural gas rose slightly to 98 as of the week ending January 31, up from a 3.5-year low of 94 rigs recorded on September 6, 2023. This follows a notable decline from a high of 166 rigs in September 2022, which represents a significant recovery from the 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 are solely for informational purposes. For more information, please view the Barchart Disclosure Policy here.

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