Natural Gas Prices Plunge to 8-Week Low Amid Warm Weather Forecasts
Key Factors Behind Natural Gas Downturn
March Nymex natural gas (NGH25) closed down by -0.123 (-3.88%) on Thursday. Prices dropped to an 8-week low, reflecting a notable decline since reaching a one-year high in mid-January. This decrease comes as forecasts predict warmer weather across the U.S., which reduces the need for heating and subsequently diminishes demand for natural gas. Forecaster Maxar Technologies noted that expectations for the period of February 4-8 have shifted to a warmer outlook.
Surprising Inventory Report Could Not Stem Decline
Despite a positive inventory report from the EIA, natural gas prices continued their slide. The report indicated a drop in inventories of -321 bcf for the week ending January 24, surpassing the anticipated decline of -316 bcf and substantially exceeding the five-year average draw of -189 bcf. Currently, U.S. natural gas inventories are -4.1% below the five-year average, marking the first time in two years that supplies have dipped below this benchmark.
Production and Demand Show Steady Growth
According to BNEF, dry gas production in the lower-48 states stood at 105.4 bcf/day, reflecting a 1.2% increase year-on-year. In contrast, gas demand in the same area was reported at 95.7 bcf/day, showing a modest rise of 1.0% over the past year. Furthermore, LNG net flows to U.S. export terminals rocketed to 14.5 bcf/day, a staggering increase of 58.6% from the previous week.
Electricity Output Boosts Demand for Natural Gas
Increased electricity generation is a positive driver for natural gas demand. The Edison Electric Institute reported a 21.3% increase in total electricity output in the lower-48 states for the week ending January 25, reaching 97,259 GWh (gigawatt hours). Over the past year, electricity output has risen by 2.25%, totaling 4,198,401 GWh.
Drilling Rig Count Sees Modest Increase
Last Friday, Baker Hughes reported that the number of active natural gas drilling rigs in the U.S. rose by one to 99 rigs as of January 24. This level remains modestly above the three-and-a-half-year low of 94 rigs observed on September 6, 2023. Notably, active rigs have decreased significantly since reaching a five-and-a-quarter-year peak of 166 rigs in September 2022, which followed the pandemic-era low of 68 rigs recorded in July 2020.
On the date of publication,
Rich Asplund did not hold (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data herein are provided solely for informational purposes. For more information, please view the Barchart Disclosure Policy
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