Natural Gas Prices Rise as US Demand Increases Amid Europe’s Supply Concerns

Market Recovery Driven by Short Covering and European Gas Supply Woes

January Nymex natural gas (NGF25) on Tuesday closed higher by +0.094 (+2.92%).

On Tuesday, January natural gas prices recovered from earlier losses and ended moderately higher. Short covering in natural gas futures helped push prices up after European prices surged by more than +4%. This increase followed the European Union’s announcement to seek alternatives to Russian gas, which may tighten supply and boost demand for US natural gas.

Weather Predictions Influence Market Movements

Initially, natural gas prices dipped as forecasts predicted above-normal temperatures across the US for the remainder of the year, leading to lower heating demand. The NOAA weather outlook for the next 11-15 days shows unseasonably warm weather across the US, particularly in the upper Midwest.

Current Production and Demand Data

According to BNEF, dry gas production in the lower 48 states was 104.9 bcf/day (-1.0% y/y) on Tuesday. Meanwhile, gas demand increased to 91.9 bcf/day (+6.8% y/y). Additionally, LNG net flows to US export terminals reached 14.1 bcf/day (+7.7% w/w), indicating a positive trend for exports.

Electricity Output Boosts Natural Gas Demand

US electricity output is also rising, which benefits natural gas demand from utility companies. The Edison Electric Institute reported a significant increase in total electricity output in the week ending December 7, rising by +10.87% y/y to 83,412 GWh (gigawatt hours). For the 52-week period ending December 7, output rose +1.96% y/y to a total of 4,173,295 GWh.

Inventory Trends and Rig Counts Indicate Market Health

Last Thursday’s EIA report was supportive for natural gas prices, showing inventories fell by -190 bcf for the week ending December 6, which was greater than the expected -168 bcf draw. Currently, inventories are +2.3% higher than last year and +4.6% above the five-year seasonal average, indicating sufficient supply. In comparison, gas storage in Europe stood at 81% full as of December 10, slightly below the five-year average of 83% for this time of year.

Baker Hughes reported that the number of active US natural gas drilling rigs increased by one to 103 as of the week ending December 13, remaining above the 3-1/2 year low of 94 recorded on September 6. Notably, the count has decreased from the 5-1/4 year peak of 166 rigs in September 2022, which followed a pandemic-era low of 68 rigs in July 2020 (with 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 those of the author and do not necessarily reflect those of Nasdaq, Inc.