Natural Gas Prices Rise Amid Cold Weather Forecasts

March Nymex natural gas (NGH25) on Wednesday closed up by +0.046 (+1.31%).

Warmer Temperatures, but Heating Demand Remains High

On Wednesday, natural gas prices settled slightly higher, although they were still under Tuesday’s 2-1/2 week high. The colder weather predictions for parts of the U.S. are likely to increase heating demand, which is supporting prices. According to forecaster Maxar Technologies, forecasts have shifted towards colder temperatures for the eastern U.S. during February 17-21.

Supply Tightness Continues to Influence Prices

There is a prevailing tightness in U.S. natural gas supplies that is propping up prices. The weekly EIA inventory report released last Thursday indicated that U.S. natural gas inventories, as of January 31, were -4.4% below the five-year average, marking the lowest level in over two years. The market anticipates that Thursday’s EIA report will show a decline of -91 bcf, which is less severe than the five-year average draw of -144 bcf for this time of year.

Gas Production and Demand Show Growth

According to BNEF, dry gas production in the lower 48 states reached 106.5 bcf/day (+0.3% year-on-year) on Wednesday, while gas demand surged to 114.1 bcf/day (+20.7% year-on-year). Additionally, LNG net flows to U.S. LNG export terminals reached 15.2 bcf/day (+5.6% week-on-week), highlighting a robust increase in natural gas usage.

Electricity Output Rises, Boosting Natural Gas Demand

The increase in U.S. electricity output is also beneficial for natural gas demand from power plants. The Edison Electric Institute reported that total electricity output in the lower 48 states rose by +4.8% year-on-year to 79,239 GWh during the week ending February 8, and saw a +2.6% year-on-year increase to 4,206,808 GWh over the past year.

Inventory Reports Reflect Supply Concerns

The earlier-mentioned EIA report provided positive signals for natural gas prices, noting that inventories for the week ending January 31 fell by -174 bcf, surpassing expectations of -171 bcf and aligning with the five-year average draw. As of January 31, inventories were down -7.2% year-on-year and -4.4% below their five-year seasonal average, suggesting continuing tight supplies. In Europe, gas storage levels were reported at 48% full as of February 9, lower than the five-year average of 57% for this time of year.

Rig Counts Suggest a Slow Return

According to Baker Hughes, the number of active natural gas drilling rigs in the U.S. rose by two to 100 rigs in the week ending February 7. This number is modestly above the three-and-a-half-year low of 94 rigs set on September 6. Rig counts have significantly decreased from a five-and-a-quarter-year high of 166 rigs recorded in September 2022, a recovery from the pandemic-era low of 68 rigs hit 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 is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

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