Natural Gas Prices Drop as US Weather Turns Warmer
February Nymex natural gas (NGG25) closed significantly lower on Tuesday, down by -0.223 to settle at -6.07%.
Warmer Weather Reduces Heating Demand
Nat-gas prices saw a decline on Tuesday after a surge on Monday, driven by updated US weather forecasts predicting a warmer mid-month. The climate outlook from NatGasWeather indicates fewer heating needs across much of the US, aligning heating demand for nat-gas closer to seasonal norms.
Production and Demand Figures
According to BNEF, dry gas production in the Lower-48 states was reported at 100.2 billion cubic feet per day (bcf/day), which marks a drop by 6.9% from the previous year. In contrast, gas demand in the same region rose to 122.9 bcf/day, an increase of 17.0% year-over-year. Additionally, net flows of liquefied natural gas (LNG) to US export terminals stood at 14.5 bcf/day, reflecting a weekly rise of 0.9%.
Increased Electricity Output Boosts Demand
The demand for nat-gas from utility companies is likely to increase, as reported by the Edison Electric Institute, which noted that total electricity output in the Lower-48 for the week ending December 28 increased by 6.25% year-over-year to 77,960 GWh. Over the past year, total US electricity output rose 2.59%, totaling 4,181,671 GWh.
Expectations for Upcoming Inventory Reports
Analysts are anticipating a decline in Wednesday’s weekly EIA nat-gas inventories for the week ending January 3, expected to fall by -42 bcf. Last Friday’s EIA report revealed a bearish outlook, showing that inventories dropped by -116 bcf for the week ending December 27, which was less than the anticipated -128 bcf but more than the 5-year average draw of -104 bcf. Currently, nat-gas inventories are down by 1.8% compared to the previous year and are 4.7% above the 5-year average, indicating a robust supply.
Drilling Rig Activity Shows Modest Gains
Baker Hughes reported a slight increase in active nat-gas drilling rigs, rising by one to a total of 103 rigs during the week ending January 3. This figure is notably higher than the 3-1/2 year low of 94 rigs recorded on September 6. The total active rigs have declined from a high of 166 in September 2022, which was a recovery from the pandemic’s lowest level of 68 rigs in July 2020, based on data dating back to 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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
