Natural Gas Prices Decline Amid Lower Inventory Draw and Warmer Forecasts
April Nymex natural gas (NGJ25) closed on Thursday at a decline of -0.025, or -0.63%.
Inventory Data Falls Short of Expectations
On Thursday, natural gas prices settled moderately lower after the weekly inventory data showed a smaller draw than anticipated. The EIA reported a drop of -261 billion cubic feet (bcf) in natural gas inventories for the week, which was less than the expected decline of -271 bcf. Additionally, forecasts predicting warmer temperatures across the southern US reduced heating demand for natural gas. The Commodity Weather Group noted that above-normal weather is expected from March 4-8.
Recent Price Movements and Weather Factors
Prices for natural gas have fluctuated recently due to various weather factors, consolidating below last Thursday’s two-year high. Despite this, they remain near the peak of February’s rally, primarily driven by inventory reductions amid colder weather conditions. As of February 21, EIA data indicated that inventories were -11.5% lower than the five-year average, marking the tightest supply levels in over two and a half years.
Production and Demand Statistics
According to BNEF, dry gas production in the Lower 48 states reached 107.4 bcf/day, a year-over-year increase of 2.8%. Gas demand in these states was reported at 83.5 bcf/day, an 11% rise compared to the previous year. Additionally, net flows of liquefied natural gas (LNG) to US export terminals amounted to 15.4 bcf/day, reflecting a weekly increase of 0.6%.
Greater electricity output throughout the US further supports demand for natural gas from utility companies. The Edison Electric Institute reported that total electricity generation in the Lower 48 for the week ending February 22 surged by +19.9% year-over-year, hitting 90,673 GWh, while the total output for the 52-week period also rose +3.1% year-over-year to 4,230,167 GWh.
Long-Term Outlook for Natural Gas Prices
In a positive long-term shift for natural gas prices, President Trump lifted the Biden administration’s hold on gas export project approvals in January. This decision has allowed for active consideration of around a dozen LNG export projects, with Bloomberg reporting that the administration is nearing approval of the Commonwealth LNG export facility in Louisiana. Increased capacity for LNG exports would likely boost demand for US natural gas and support prices.
Weekly EIA Report Analysis
Thursday’s EIA report was slightly bearish for natural gas prices since the -261 bcf draw fell short of the expected -271 bcf but exceeded the five-year seasonal average draw of -141 bcf. Natural gas inventories were down -22.5% year-over-year and -11.5% below the five-year seasonal average, indicating tight supply levels. In Europe, gas storage was reported at 40% full as of February 25, compared to a typical five-year average of 51%.
Drilling Rig Activity
Baker Hughes reported that the number of active US natural gas drilling rigs fell by 2 to a total of 99 rigs for the week ending February 21. This figure is modestly above the 3.5-year low posted at 94 rigs on September 6, 2024. Since reaching a 5.25-year high of 166 rigs in September 2022, the count has consistently declined from the pandemic-era low of 68 rigs recorded in July 2020, according to data available 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 are solely for informational purposes. For more information, please view the Barchart Disclosure Policy here.
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