Natural Gas Prices Climb as Cold Weather Expected

January Nymex natural gas (NGF25) on Monday closed up by +0.106 (+3.45%).

Price Boost Driven by Weekend Weather Forecasts

Nat-gas prices experienced a rally on Monday, hitting a one-week high thanks to weather predictions that indicate lower temperatures for the eastern half of the U.S. later this week. This increase in cold weather is likely to raise heating demands for natural gas.

Supply Levels Remain High Amid Warmer Winter Expectations

Although the upcoming colder temperatures may drive demand, warmer overall winter temperatures could keep U.S. natural gas supplies high, presenting a bearish influence on prices. As of November 29, U.S. natural gas inventories were +7.8% above their five-year seasonal average, indicating that supplies are plentiful.

Production and Demand Trends Show Mixed Results

According to BNEF, dry gas production in the lower-48 states on Monday was 105 bcf/day, a slight dip of -0.9% year-over-year. In contrast, gas demand rose to 89.6 bcf/day, up +10.9% year-over-year. However, LNG net flows to U.S. export terminals saw a decrease to 13.6 bcf/day, down -2.7% week over week.

Electricity Generation Declines, Impacting Natural Gas Demand

A recent report from the Edison Electric Institute showed a decline in U.S. electricity output, which may reduce demand for natural gas from utility providers. For the week ending November 30, electricity generation in the lower-48 states dropped -3.94% year-over-year to 74,881 GWh, but in the longer 52-week period, output rose by +1.76% to 4,165,120 GWh.

Inventory Reports Present Challenges for Pricing

The latest weekly EIA report, released last Thursday, was bearish for natural gas prices. It indicated a decrease in inventories of -30 bcf for the week ending November 29, not meeting the anticipated -36 bcf and falling short of the five-year average draw of -47 bcf. By November 22, inventories had increased by +5.9% year-over-year, remaining well above the five-year average.

Drilling Activity Slightly Increases

According to Baker Hughes, the number of active U.S. natural gas drilling rigs increased by 2 to reach 102 rigs for the week ending December 6. While this is a modest rise, it is still above the recent low of 94 rigs in September. Overall drilling activity has decreased since the five-and-a-quarter year high of 166 rigs was recorded in September 2022, following a pandemic-era low of 68 rigs in July 2020.

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 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.