February Natural Gas Prices Surge on Cold Weather Forecast
February Nymex natural gas (NGG25) on Monday closed up sharply by +0.553 (+16.35%).
Colder Temperatures Drive Demand
On Monday, February natural gas prices hit their highest level in nearly a year, climbing due to expectations of colder weather in the coming month. This forecast suggests a rise in heating demand for natural gas. Fund buying contributed to the price increase when the National Weather Service predicted lower temperatures across the East and Midwest regions of the U.S. in its 8-14 day outlook. This shift follows a predominantly mild winter so far.
Production and Demand Trends
According to BNEF, dry gas production in the Lower 48 states on Monday was 106.5 bcf/day, reflecting a year-over-year increase of 1.2%. However, gas demand in the Lower 48 states dropped to 85.1 bcf/day, down 9.7% compared to the previous year. Meanwhile, LNG net flows to U.S. export terminals rose to 14.3 bcf/day, marking a 2.9% increase week-over-week.
Electricity Output Rises
The demand for natural gas from utility providers is likely to benefit from an increase in U.S. electricity output. The Edison Electric Institute reported last Thursday that total electricity output in the Lower 48 states for the week ending December 21 increased by 1.87% year-over-year, reaching 79,947 GWh. Additionally, for the 52-week period ending December 21, electricity output rose by 2.32% to 4,177,082 GWh.
Inventory Insights
Last Friday’s EIA report suggested a bearish outlook for natural gas prices. It revealed that inventories for the week ended December 20 decreased by 93 bcf, which was less than the expected 100 bcf decline, and significantly below the 5-year average draw of 127 bcf for this period. As of December 20, natural gas inventories were up 1.1% year-over-year and 4.9% above the 5-year seasonal average, indicating sufficient supplies. In Europe, gas storage stood at 76% full as of December 22, below the 5-year seasonal average of 79% for this time of year.
Drilling Rig Count Remains Steady
Baker Hughes reported that the active number of U.S. natural gas drilling rigs remained unchanged at 102 for the week ending December 27. This figure is modestly higher than the 3½ year low of 94 rigs recorded on September 6. The count of active rigs has decreased since hitting a 5⅓ year high of 166 in September 2022, rebounding from the pandemic-era low of 68 rigs seen in July 2020, according to data dating back to 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.
