Natural Gas Prices Take a Dive Amid Warmer Weather Forecasts

Heating Demand Drops Following New Weather Updates

February Nymex natural gas (NGG25) closed down sharply on Friday, falling by -0.306 (-8.36%). Prices declined significantly after updated weather forecasts indicated warmer conditions for the eastern United States, which will likely reduce heating demand for natural gas. According to NatGasWeather.com, forecasts for mid-January have shifted to a milder pattern.

The Energy Information Administration (EIA) reported that natural gas inventories decreased by -116 billion cubic feet (bcf) for the week ending December 27. This drop was less than the anticipated -128 bcf, contributing to further price decreases throughout the day.

Dry gas production in the Lower-48 states was recorded at 104.9 bcf/day, reflecting a slight year-over-year decrease of -0.3%, as reported by BNEF. Meanwhile, gas demand in these states reached 104.2 bcf/day, down -1.6% from the previous year. However, LNG net flows to U.S. LNG export terminals increased to 14.7 bcf/day, showing a weekly rise of +2.1%.

Interestingly, an upward trend in U.S. electricity output could positively impact natural gas demand from utilities. The Edison Electric Institute noted that during the week ending December 28, total electricity output in the Lower-48 states rose by +6.25% year-over-year to 77,960 gigawatt hours (GWh). Over a 52-week period, electricity output increased by +2.59% to 4,181,671 GWh.

Despite these dynamics, Friday’s EIA report was bearish for natural gas prices. The smaller-than-expected inventory draw of -116 bcf slightly exceeded the five-year average draw for this season, which is -104 bcf. As of December 27, natural gas inventories were down -1.8% year-over-year but stood +4.7% above the five-year average, signifying sufficient supplies. In Europe, gas storage levels were at 74% as of December 28, which is below the seasonal five-year average of 78%.

Additionally, Baker Hughes reported an increase in active U.S. natural gas drilling rigs. For the week ending January 3, the count rose by one to reach 103 rigs, which is slightly above the 3-1/2 year low of 94 rigs recorded on September 6. This number has decreased significantly from a five-and-a-quarter-year high of 166 rigs in September 2022, following a pandemic-era low of 68 rigs 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 is solely for informational purposes. For more information, please view the Barchart Disclosure Policy here.

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