Nat-Gas Plunges on Warmer Weather Forecasts and Smaller Inventory Draw

Rich Asplund Barchart Fri Jan 3, 2:15PM CST
Natural gas burnoff refinery by Leonid Eremeychuk via iStock

February Nymex natural gas (NGG25) on Friday closed down sharply by -0.306 (-8.36%).

Feb nat-gas prices settled sharply lower on Friday after updated weather forecasts trended warmer for the eastern US, which will curb heating demand for nat-gas.  NatGasWeather.com said weather models shifted warmer for the eastern US for mid-January.   Losses in nat-gas prices accelerated Friday after the EIA reported that nat-gas inventories for the week of December 27 fell -116 bcf, a smaller draw than expectations of -128 bcf.  

Lower-48 state dry gas production Friday was 104.9 bcf/day (-0.3% y/y), according to BNEF.  Lower-48 state gas demand Friday was 104.2 bcf/day (-1.6% y/y), according to BNEF.  LNG net flows to US LNG export terminals Friday were 14.7 bcf/day (+2.1% w/w), according to BNEF.

An increase in US electricity output is positive for nat-gas demand from utility providers.  The Edison Electric Institute reported Thursday that total US (lower-48) electricity output in the week ended December 28 rose +6.25% y/y to 77,960 GWh (gigawatt hours), and US electricity output in the 52-week period ending December 28 rose +2.59% y/y to 4,181,671 GWh.

Friday's weekly EIA report was bearish for nat-gas prices since nat-gas inventories for the week ended December 27 fell -116 bcf, a smaller draw than expectations of -128, although more than the 5-year average draw for this time of year of -104 bcf.  As of December 27, nat-gas inventories were down -1.8% y/y and were +4.7% above their 5-year seasonal average, signaling ample nat-gas supplies.  In Europe, gas storage was 74% full as of December 28, below the 5-year seasonal average of 78% full for this time of year.

Baker Hughes reported last Friday that the number of active US nat-gas drilling rigs in the week ending January 3 rose +1 to 103 rigs, modestly above the 3-1/2 year low from September 6 of 94 rigs.  Active rigs have fallen since posting a 5-1/4 year high of 166 rigs in Sep 2022, up from the pandemic-era record low of 68 rigs posted in July 2020 (data since 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.