Natural Gas Prices Surge Amid Cold Weather Forecasts
On Friday, January Nymex natural gas (NGF25) closed up by +0.080 (+2.83%).
Warmer Expectations Fuel Demand
After dipping to a one-week low earlier in the week, natural gas prices bounced back on hopes that Arctic air would sweep through the lower 48 U.S. states, boosting heating demand. The Commodity Weather Group predicted below-normal temperatures for the eastern U.S. during the latter half of next week, with another possible cold front expected the week after.
Inventory Report and Pricing Dynamics
Prices initially fell following Wednesday’s EIA inventory report, which revealed a decline of -2 billion cubic feet (bcf) in natural gas inventories. This was less than the projected -3 bcf, leaving inventories +7.2% above the five-year seasonal average. The situation indicates there are sufficient supplies in the market.
Last week saw a sharp rally in natural gas prices, reaching a one-year high. This surge was partly driven by rising European natural gas prices, which also hit a one-year high amid escalations in the Ukraine-Russia conflict. Following Russia’s hypersonic missile strike on Ukraine, the U.S. sanctioned Gazprombank, restricting financial transactions that some European countries relied on for gas purchases from Russia. This raised concerns about potential cutoffs in natural gas supplies to Europe.
Production and Demand Trends
According to BNEF, dry gas production from the lower 48 states on Friday was 104.5 bcf/day, which is a 0.3% increase year-over-year. In contrast, demand dropped by 6.9% year-over-year to 96.3 bcf/day. Meanwhile, flows of liquefied natural gas (LNG) to U.S. export terminals saw an uptick to 14.1 bcf/day, marking a 4.5% weekly increase.
In a positive development for natural gas demand, U.S. electricity output increased. The Edison Electric Institute reported on Wednesday that total electricity generation in the lower 48 states for the week ending November 23 rose by 3.86% year-over-year to 73,873 GWh. Over the past year, output has risen by 1.91% to a total of 4,168,195 GWh.
Recent Trends in Drilling Activity
The latest Baker Hughes report showed a slight increase in active U.S. natural gas drilling rigs, rising by one to reach 100. This is above the 3.5-year low of 94 rigs recorded on September 6, 2023. Rig counts have decreased since peaking at 166 rigs in September 2022, following a record low of 68 in July 2020 during the pandemic.
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 those of the author and do not necessarily reflect those of Nasdaq, Inc.
