Natural Gas Prices Plummet as Weather Forecasts Shift
On Friday, December Nymex natural gas (NGZ24) experienced a significant drop, closing down by -0.210 (-6.29%).
Warm Weather Forecast Cuts Heating Demand
Natural gas prices declined sharply after reaching a one-year high earlier in the week. The change in weather forecasts from below-normal to warmer conditions across the US is expected to lower heating demand for gas. The Commodity Weather Group noted this shift for the period of December 2-6, prompting long liquidation in nat-gas futures.
European Market Influences US Prices
This week, nat-gas prices had initially surged, buoyed by a rally in European markets amid escalating tensions from the Ukraine-Russia conflict, which included Russia’s recent launch of a hypersonic missile into Ukraine. Additionally, the US imposed sanctions on Gazprombank, impacting European countries that rely on this institution to pay for Russian gas, raising concerns about supply disruptions.
Production and Demand Fluctuations
According to BNEF, lower-48 state dry gas production on Friday stood at 103.0 bcf/day, reflecting a 2.1% year-over-year decline. In contrast, gas demand rose to 87.7 bcf/day, marking a 4.9% increase from the previous year. Furthermore, LNG net flows to US export terminals reached 14.2 bcf/day, up by 6.2% week-on-week.
Electricity Demand Supports Natural Gas
As electricity output in the US increases, this trend is likely boosting nat-gas demand from utility providers. The Edison Electric Institute reported that total electricity output for the week ending November 16 rose by 2.06% year-over-year, totaling 7,764 GWh. In the past 52 weeks, electricity output increased by 1.8% compared to the previous year, reaching 4,165,449 GWh.
Inventory Trends Signal Ample Supplies
The weekly EIA report released on Thursday provided bullish news for nat-gas prices. Inventories for the week ending November 15 unexpectedly fell by 3 bcf, contrary to expectations of a 1 bcf increase. However, inventories remain 3.7% higher than last year and 6.4% above the five-year seasonal average, indicating a healthy supply situation. In Europe, gas storage was recorded at 90% capacity as of November 19, slightly below the five-year seasonal average of 91% full.
Decline in Active Drilling Rigs
Baker Hughes reported a decline in the number of active US nat-gas drilling rigs, which fell by 2 to 99 rigs for the week ending November 22. This figure is modestly above the 3.5-year low of 94 rigs reached on September 6. The current activity level is down from a peak of 166 rigs in September 2022 and is significantly lower than the pandemic-era low of 68 rigs recorded in July 2020, noting that this data dates back to 1987.
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.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
