Natural Gas Prices Dip Amid Warmer Weather Outlook
January Nymex natural gas (NGF25) on Tuesday closed down by -0.019 (-0.60%).
Warmer Temperatures Predictably Lower Demand
Natural gas prices for January settled lower on forecasts of warmer weather across the eastern United States from December 15-19. This change is expected to decrease the need for heating, contributing to a surplus in supply.
U.S. Gas Supplies Remain Abundant
Warmer winter conditions could sustain high levels of natural gas supplies. As of November 29, U.S. inventories were reported at +7.8% above their five-year seasonal average, indicating more than enough supply available.
Production and Demand Statistics
On Tuesday, dry gas production in the lower 48 states was recorded at 103.9 billion cubic feet per day (bcf/day), a decline of -1.7% year-over-year. In contrast, demand in the lower 48 states was slightly higher at 93 bcf/day, marking an increase of +1.5% from last year. Additionally, liquefied natural gas (LNG) net flows to U.S. export terminals reached 13.3 bcf/day, reflecting a weekly rise of +1.1%.
Electricity Output Drops, Impacting Demand
A decrease in electricity generation could negatively affect natural gas demand from utility providers. According to the Edison Electric Institute, total electricity output in the lower 48 states fell -3.94% year-over-year for the week ending November 30 to 74,881 gigawatt-hours (GWh). However, for the past 52 weeks, total output increased by +1.76% year-over-year, totaling 4,165,120 GWh.
Inventory Data Points to Oversupply
The latest EIA report released Thursday appeared bearish for natural gas prices. It showed a decrease of -30 bcf in inventories for the week ending November 29, which was less than expected and below the typical draw of -47 bcf for this time of year. Notably, inventories were up +5.9% from last year and +7.8% above the five-year average, underscoring an oversupply. In Europe, gas storage was reported at 82% full as of December 8, slightly below the five-year average of 84% for this period.
Active Drilling Rigs See a Slight Increase
Baker Hughes reported an uptick in the number of active drilling rigs, which rose by 2 to a total of 102 rigs for the week ending December 6. This figure remains above the recent low of 94 rigs reached on September 6. It’s noteworthy that active rigs have diminished significantly from a high of 166 in September 2022, following a pandemic-era low of 68 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 those of the author and do not necessarily reflect those of Nasdaq, Inc.
