Market Analysis
Nat-gas prices suffered losses on Thursday, with April Nymex natural gas (NGJ24) closing down by -0.016 (-0.94%). The dismal performance was attributed to the overwhelming supply of nat-gas in the United States.
Historical Context
This setback echoes the harsh reality facing the nat-gas market as Thursday’s weekly EIA inventory report revealed that US nat-gas inventories sit at a staggering +41.0% above their 5-year average as of March 15, marking the most significant surplus seen in nearly eight years.
Current Climate
The forecast for nat-gas remains uncertain, with the Commodity Weather Group predicting colder than average temperatures for the western and central US from March 26-20. In contrast, the eastern US is expected to experience warmer conditions.
The Fall of Nat-Gas Prices
Nat-gas prices have plummeted this year, plunging to a 3-1/2 year nearest-futures low (H24) in late February. The milder winter contributed significantly to reduced heating consumption for nat-gas, resulting in inventories soaring well above average levels.
Impact of Climate Patterns
The US Climate Prediction Center has also shed light on the situation, indicating a greater than 55% likelihood that the ongoing El Nino weather pattern will persist strongly in the Northern Hemisphere through March. This pattern spells continued above-average temperatures, further suppressing nat-gas prices.
Production Challenges
Additional pressure on nat-gas prices ensued after the Freeport LNG nat-gas export terminal in Texas confronted operational issues due to extreme cold weather. The shutdown of one production unit led to restricted capacity, limiting US nat-gas exports and exacerbating nat-gas inventories.
Supply and Demand Analysis
Lower-48 state dry gas production remains robust, standing at 100.0 bcf/day according to BNEF, while state gas demand hit 88.2 bcf/day, indicating a notable increase from the previous year. Notably, LNG net flows to US LNG export terminals have seen a slight decrease.
Electricity Output Decline
A reduction in US electricity output poses a challenge to nat-gas demand from utility providers. The recent report by the Edison Electric Institute highlighted a decline in total US electricity output, signaling a negative trend for nat-gas consumption.
Outlook on Inventory
The most recent weekly EIA report painted a bleak picture for nat-gas prices, with an unexpected rise of +7 bcf in inventories for the week ending March 15, surpassing the 5-year average decline. The surplus further exacerbated the issue, pushing nat-gas supplies to levels significantly above the seasonal average.
Drilling Rig Activity
Despite the challenges, there was a marginal uptick in the number of active US nat-gas drilling rigs, as reported by Baker Hughes. The rise to 116 rigs brought some respite, albeit the figure still remains above the 2-year low observed previously.
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Rich Asplund does not hold positions in any of the securities mentioned in this article. The information provided is for informational purposes only.
The opinions expressed are solely those of the author and may not mirror those of Nasdaq, Inc.
