Natural Gas Prices Surge as Colder Temperatures Boost Demand
March Nymex natural gas (NGH25) closed significantly higher on Monday, rising by +0.308 (+10.12%).
Weather Drives Price Rally
On Monday, natural gas prices reached a one-week high, fueled by forecasts predicting much colder temperatures across the U.S. These conditions are expected to increase the demand for heating. The Commodity Weather Group reported that starting later this week, much of the northern half of the U.S. will experience below-normal temperatures for a significant part of the month. Additionally, price increases were supported by short-covering after European natural gas prices jumped to a 15-month high.
U.S. Supplies Show Tightening
Support for higher prices also comes from a tightening in U.S. natural gas supplies. According to the latest EIA inventory report released last Thursday, natural gas inventories stood at 4.1% below the five-year average for this time of year, marking the first instance in two years that supplies have dipped below this average.
Production and Demand Trends
For the Lower-48 states, dry gas production averaged 106.6 billion cubic feet per day (bcf/day), reflecting a 1.0% increase year-over-year. Demand, on the other hand, reached 90.7 bcf/day, representing a 3.3% annual rise. Furthermore, net flows of liquefied natural gas (LNG) to U.S. export terminals were recorded at 14.7 bcf/day, up 2.8% from the previous week.
Electricity Production Supports Natural Gas Consumption
Increased electricity output in the U.S. is also contributing positively to natural gas demand from utility providers. The Edison Electric Institute reported a 21.3% year-over-year increase in electricity output for the week ending January 25, totaling 97,259 GWh. Over the 52-week period ending January 24, output rose by 2.25% year-over-year to 4,198,401 GWh.
Inventory Decline and European Context
Last Thursday’s EIA report highlighted a drop in natural gas inventories, recording a decrease of 321 bcf, surpassing expectations of 316 bcf. This reduced inventory is significantly larger compared to the five-year average draw of 189 bcf for this time of the year. Overall, natural gas inventories are down 3.3% compared to last year and are currently 4.1% below their five-year seasonal average. In Europe, natural gas storage was 55% full as of January 28, which is below the five-year average of 62% for this season.
Rig Count Indicates Modest Activity
Baker Hughes reported a decline in the number of active U.S. natural gas drilling rigs, which fell by one rig to a total of 98 as of the week ending January 31. This figure is slightly above the 3.5-year low of 94 rigs recorded on September 6. The total active rigs have seen a downward trend since reaching a 5.25-year high of 166 rigs in September 2022, following a significant drop to 68 rigs during the pandemic in July 2020.
On the date of publication,
Rich Asplund
did not hold (either directly or indirectly) any positions in the securities mentioned in this article. All information provided in this article is for informational purposes only. For more information, please refer to the Barchart Disclosure Policy
here.
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