Natural Gas Prices Surge Following Supply Draw and Cold Weather Predictions
Market Rally Boosted By Larger-Than-Expected Inventory Reductions
March Nymex natural gas (NGH25) closed up by +0.063 (+1.77%) on Thursday. This week’s rally has brought prices to a two-week high, spurred by a larger-than-anticipated draw in gas supplies. The EIA reported that natural gas inventories dropped by -100 bcf for the week ending February 7, surpassing the expected decline of -91 bcf.
Colder Weather Increases Demand and Prices
Colder weather forecasts for the eastern United States are also driving up natural gas prices. Maxer Technologies has indicated that temperatures are expected to be lower than usual from February 17-21, which could lead to increased heating demand.
Production and Demand Data
According to BNEF, dry gas production in the lower-48 states was recorded at 105.4 bcf/day, a 0.4% decline year-over-year. In contrast, gas demand soared to 119.5 bcf/day, marking a significant increase of 20.2% year-over-year. Additionally, net flows of liquefied natural gas (LNG) to U.S. export terminals rose to 15.4 bcf/day, which is up 4.1% week-over-week.
Electricity Output Boosts Natural Gas Demand
The demand for natural gas will also benefit from rising electricity output. The Edison Electric Institute reported that total electricity generation across the lower-48 states grew by 4.8% year-over-year to 79,239 GWh for the week ending February 8. During the past 52-week period, output rose by 2.6% year-over-year to 4,206,808 GWh.
Inventory Analysis and European Context
The weekly EIA report contributed positively to natural gas prices, indicating that inventories fell by -100 bcf, exceeding the expectations of -91 bcf. However, this draw was less than the 5-year average decline of -144 bcf for this time of year. As of February 7, natural gas inventories were down -9.2% year-over-year and -2.8% below the five-year seasonal average, signaling tight supplies. In Europe, gas storage levels were reported at 47% capacity as of February 11, which is low compared to the five-year average of 5% for this time of year.
Drilling Activity Updates
Baker Hughes reported last Friday an increase in the number of active U.S. natural gas drilling rigs, which rose by +2 to reach 100 rigs. This figure remains modestly above the 3.5-year low of 94 rigs recorded on September 6. Rig counts have decreased from a high of 166 rigs in September 2022, following a pandemic-era low of 68 in July 2020, marking a significant shift in the market conditions 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.
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