Natural Gas Prices Drop Sharply Amid Warmer Weather Forecasts
Understanding the Factors Behind the Decline
January Nymex natural gas (NGF25) fell sharply on Tuesday, closing at -0.171, a decrease of -5.32%.
For the second consecutive day, January natural gas prices decreased, reaching a two-week low. Forecasts predicting warmer temperatures across the eastern United States are expected to reduce heating demand for natural gas, negatively impacting prices. According to forecaster Atmospheric G2, predictions for the eastern U.S. have shifted warmer through the middle of this month.
These warmer winter months could lead to higher natural gas supplies in the U.S., contributing to bearish market conditions. As of November 22, U.S. natural gas inventories stood 7.2% above the five-year seasonal average for this time of year, indicating a surplus in supplies.
On Tuesday, dry gas production in the lower 48 states was recorded at 104.1 billion cubic feet per day (bcf/day), a decline of 1.6% year-over-year, as reported by BNEF. Meanwhile, gas demand in these states reached 106.4 bcf/day, reflecting a significant increase of 25.7% compared to the previous year. Net flows of liquefied natural gas (LNG) to U.S. LNG export terminals were reported at 13.4 bcf/day, a slight drop of 1.0% from the previous week, according to BNEF.
Increased electricity output is driving demand for natural gas from utility providers. The Edison Electric Institute reported a 3.86% year-on-year increase in total U.S. electricity output for the week ending November 23, reaching 73,873 gigawatt hours (GWh). This increase translates to a 1.91% rise over the past year, totaling 4,168,195 GWh.
The weekly EIA report released last Wednesday revealed bearish news for natural gas prices. Natural gas inventories for the week ending November 22 showed a decrease of 2 bcf, against expectations of a 3 bcf drop, which is still considerably higher than the five-year average draw of 30 bcf for this time of year. As of November 22, natural gas inventories were up 3.4% year-on-year and 7.2% above the five-year seasonal average, reflecting sufficient supplies. In Europe, gas storage levels were at 85% as of December 1, slightly lower than the five-year seasonal average of 87% for this time of year.
According to Baker Hughes, the number of active U.S. natural gas drilling rigs rose by one to reach 100 as of the week ending November 29. This figure remains slightly above the three-and-a-half-year low noted on September 6, which was 94 rigs. Since reaching a five-and-a-quarter-year high of 166 rigs in September 2022, active rigs have decreased significantly from the pandemic low of 68 rigs recorded in July 2020, based on 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 intended for informational purposes only. For more information, please view the Barchart Disclosure Policy here.
The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Nasdaq, Inc.
