Natural Gas Prices Plummet as Warming Forecasts Emerge
On Tuesday, February Nymex natural gas (NGG25) fell significantly, closing at -0.303, a drop of -7.70%.
Weather Woes Lead to Price Decline
Natural gas prices experienced a steep decline, reversing nearly half of Monday’s gains. The shift occurred after weather forecasts showed warmer temperatures for January 10-14, easing worries about heightened heating demand. Maxar Technologies, a weather forecasting service, reported these changes for the Midwest and South. On Monday, prices had surged to the highest level in almost a year due to expectations of colder weather.
Production and Demand Updates
According to BNEF, dry gas production in the Lower-48 states on Tuesday was recorded at 104.7 billion cubic feet per day (bcf/day), reflecting a -1.1% year-over-year decrease. Meanwhile, gas demand stood at 89.3 bcf/day, down -5.8% year-over-year. However, net flows to US LNG export terminals rose by 3.4% week-over-week, reaching 14.6 bcf/day.
Electricity Generation Boosts Natural Gas Demand
An increase in electricity generation could positively impact natural gas demand. The Edison Electric Institute shared that US electricity output for the week ending December 21 increased by +1.87% year-over-year, totaling 79,947 GWh. Over the 52-week period ending December 21, this figure rose +2.32% year-over-year to 4,177,082 GWh.
Inventory Reports Paint a Bearish Picture
The most recent weekly EIA report, released last Friday, indicated a decrease in natural gas inventories of -93 bcf for the week ending December 20. This was less than the anticipated decrease of -100 bcf and lower than the 5-year average drop of -127 bcf. As of the same date, inventories were up +1.1% year-on-year and +4.9% above their 5-year seasonal average, suggesting a sufficient supply of natural gas. In Europe, gas storage levels stood at 74% full as of December 28, below the 5-year average of 78% for this time of year.
Drilling Activity Remains Steady
Baker Hughes reported last Friday that the number of active natural gas drilling rigs in the US remained unchanged at 102 for the week ending December 27. This figure is slightly above the 3.5-year low of 94 rigs recorded on September 6. The number of active rigs has declined from a recent peak of 166 rigs in September 2022, following the pandemic-era low of 68 rigs in July 2020, data which has been tracked since 1987.
On the date of publication, Rich Asplund did not hold any positions in the securities mentioned in this article. All information and data provided are for informational purposes only. For more details, please review the Barchart Disclosure Policy here.
The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Nasdaq, Inc.
