February Natural Gas Prices Decline as Warmer Weather Forecasts Reduce Demand
February Nymex natural gas (NGG25) on Thursday closed down -0.185 (-5.28%).
Warmer Temperatures Expected to Impact Heating Needs
On Thursday, February natural gas prices dropped significantly due to forecasts predicting warmer winter temperatures in the U.S., which would lower the demand for heating. According to forecaster Maxar Technologies, many areas of the U.S. will experience above-average temperatures from December 26-30, before cooler temperatures are expected to return early next month.
Gas Production and Demand Insights
On the same day, the Lower-48 states reported a dry natural gas production level of 105.0 bcf/day, marking a decline of 1.2% year-over-year, according to BNEF. In terms of demand, the Lower-48 states consumed 93 bcf/day, showing an increase of 9.6% compared to the previous year. Additionally, LNG net flows to U.S. export terminals reached 14.3 bcf/day, down 0.6% week-over-week.
Electricity Output Boosts Natural Gas Demand
Rising electricity output in the U.S. is likely to increase demand for natural gas from power companies. The Edison Electric Institute reported that U.S. electricity output for the week ending December 21 increased by 1.87% year-over-year to 79,947 GWh. Furthermore, the output for the 52-week period ending December 21 increased by 2.32% year-over-year to reach 4,177,082 GWh.
Inventory Expectations Ahead of EIA Report
The industry anticipates that Friday’s weekly EIA natural gas inventories report (postponed a day due to the Christmas holiday) will show a reduction of -100 bcf for the week ending December 20. This expected decline is less than the five-year average draw of -127 bcf for this time of year.
Recent EIA Report and Inventory Context
The previous weekly EIA report released last Thursday provided slightly bullish news for natural gas prices; it showed that inventories had decreased by -125 bcf for the week ended December 13. This was in line with expectations, but it was a larger reduction compared to the five-year average decline of -92 bcf. As of December 13, natural gas inventories were noted to be up 1.3% year-over-year and 3.8% above their five-year seasonal average, indicating a healthy supply situation. In Europe, gas storage was reported to be 76% full as of December 22, which is below the five-year average of 79% for this time of year.
Drilling Activity Trends
Baker Hughes noted a slight decline in the number of active U.S. natural gas drilling rigs last Friday, with the count falling by one rig to a total of 102. This is somewhat higher than the recent low of 94 rigs recorded on September 6, but down from a peak of 166 rigs in September 2022, which followed the pandemic-era low of just 68 rigs in July 2020.
On the date of publication, Rich Asplund did not hold any positions in the securities mentioned in this article. All information and data herein are for informational purposes only. For additional details, 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.
