Natural Gas Prices Tumble as Supply Increases Hit the Market

Significant Rise in EIA Nat-Gas Supplies Sparks Price Decline

December Nymex natural gas (NGZ24) closed down sharply on Thursday, falling by -0.198 (-6.64%). Price declines followed the release of the weekly EIA report, which showed that nat-gas inventories for the week ending November 8 rose by +42 bcf, exceeding expectations of +39 bcf and outpacing the five-year average of +29 bcf for this time of year. Surprisingly, prices dropped despite forecasts predicting cooler US temperatures, which typically increase heating demand for natural gas. Maxar Technologies noted that temperatures are expected to shift cooler starting from the West Coast, moving eastward during the period of November 18-22.

Production and Demand Trends Highlighted

According to BNEF, Lower-48 state dry gas production on Thursday was recorded at 100.9 bcf/day, a decrease of 3.5% compared to last year. Demand in the same region stood at 82.2 bcf/day, down 1.5% year-over-year. Meanwhile, LNG net flows to US export terminals increased to 13.9 bcf/day, marking a 10% week-over-week rise.

Electricity Output Sends Mixed Signals

The rise in US electricity output could boost natural gas demand from utility companies. The Edison Electric Institute reported that total electricity output for the week ending November 9 rose by +3.19% year-over-year to 73,297 GWh (gigawatt hours). For the 52-week period ending November 9, total output increased by +1.6% year-over-year, reaching 4,164,003 GWh.

Bearish Sentiment from EIA Report

The EIA’s latest report was generally bearish for natural gas prices. Inventory levels as of November 8 were up +3.7% from last year and were +6.1% higher than their five-year seasonal average, indicating a strong supply presence. Additionally, gas storage in Europe was noted to be 93% full as of November 10, slightly above the five-year average of 92% for this time of year.

Drilling Activity Remains Steady

Baker Hughes reported that the number of active US natural gas drilling rigs remained stable at 102 as of the week ending November 8. This level is modestly above the three-and-a-half-year low of 94 rigs observed on September 6. Drilling activity has declined since reaching a five-year high of 166 rigs in September 2022, down from a record low of 68 rigs during the pandemic in July 2020, based on data dating back to 1987.

On the date of publication, Rich Asplund did not hold positions in any of the securities mentioned in this article. All information in this article is intended for informational purposes only. For more details, please view the Barchart Disclosure Policy here.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.