February Natural Gas Prices Gain Amid Changing Weather Patterns

Market Recovery Fueled by Increased Heating Demand

February Nymex natural gas (NGG25) on Tuesday closed up by +0.034 (+0.86%).

On Tuesday, natural gas prices recovered from earlier losses and settled higher, thanks to shifting weather forecasts in the U.S. While prices rose, they remained under the previous day’s one-year nearest-futures high. Forecaster Maxar Technologies predicts colder conditions across much of the country over the next two weeks, which is expected to increase heating demand for natural gas.

In terms of production, Lower-48 state dry gas output stood at 103.3 bcf/day, reflecting a 6.6% increase from last year, according to BNEF. Demand in the Lower-48 states decreased to 120.7 bcf/day, marking a 4.9% decline year-on-year. Net flows of LNG to U.S. export terminals reached 14.6 bcf/day, up by 3.9% week-on-week, as per BNEF.

Interestingly, a drop in U.S. electricity generation has negatively impacted natural gas demand from utility providers. The Edison Electric Institute reported last Wednesday that total electricity output in the Lower-48 states for the week ended January 4 fell by 2.73% year-on-year to 77,518 GWh. However, during the 52-week period ending January 4, overall output rose by 2.37% year-on-year, totaling 4,179,498 GWh.

The recent EIA report also presented a slightly bearish outlook for natural gas prices. For the week ending January 3, natural gas inventories decreased by 40 bcf, which was less than the expected drop of 42 bcf and significantly below the five-year average reduction of 93 bcf for this time of year. As of January 3, inventories were up 1.1% year-on-year and were 6.5% higher than their five-year seasonal average, indicating sufficient supply. In Europe, gas storage was 66% full as of January 12, under the five-year average of 72% at this time of year.

Lastly, Baker Hughes reported that the number of active U.S. natural gas drilling rigs fell by three to 100 rigs in the week ending January 10. This figure is only modestly above the 3.5-year low of 94 rigs recorded on September 6. Rig activity has decreased since reaching a 5.25-year high of 166 rigs in September 2022—an increase from the pandemic-era low of 68 rigs logged in July 2020 (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 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.