Nat-Gas Prices Rebound as Dollar Weakness Sparks Short Covering

Nov Nymex natural gas (NGX22) on Monday closed up by +0.240 (+4.84%).

Nov nat-gas Monday rebounded from a 7-month nearest-futures low and closed sharply higher as a weaker dollar sparked short covering in nat-gas futures.  Nat-gas prices Monday initially tumbled to a 7-month low on the outlook for warmer-than-normal U.S temperatures to reduce heating demand for nat-gas.  Forecaster Atmospheric G2 said that above-normal temperatures are expected across the eastern two-thirds of the U.S. from October 29-November 2.

Lower-48 state total gas production on Monday was 100.2 bcf, up +4.9% y/y.  BNEF data showed lower-48 state U.S. nat-gas production on Oct 3 climbed to a record high of 103.6 bcf.  Lower-48 state total gas demand Monday was 64.8 bcf/day, down -0.5% y/y.  LNG net flow to U.S. LNG export terminals Monday was 11.3 bcf/day, down -4.7% w/w.

A decline in U.S. electricity output is bearish for nat-gas demand from utility providers.  The Edison Electric Institute reported Wednesday that total U.S. electricity output in the week ended Oct 15 fell -3.8% y/y to 70,244 GWh (gigawatt hours).  However, cumulative U.S. electricity output in the 52-week period ending Oct 8 rose +2.0% y/y to 4,113,318 GWh.

Nat-gas prices have support as EU countries agreed to cut nat-gas demand from Russia by 15% by early 2023.  Also, Russia recently slashed nat-gas exports to Europe to 20% of capacity, putting upward pressure on European nat-gas prices.  Russia has already halted nat-gas shipments to Demark, Finland, Bulgaria, Netherlands, Poland, and Latvia and reduced supplies to Germany for not acceding to its demand for gas payments in Russian rubles.

In an underlying bullish factor, last month's sabotage of the Nord Stream 1 undersea nat-gas pipeline and the massive leak under the Baltic Sea means there will be no near-term chance that Russia might reopen the pipeline to begin delivering gas to Europe again.  Prior to the explosions, Russia's state-owned gas company Gazprom had cut off the delivery of gas through that pipeline to Europe under the pretext of technical issues.

Nat-gas prices have seen downward pressure from the prolonged outage at the Freeport LNG export terminal, which curbed U.S nat-gas exports and put upward pressure on domestic supplies.   The Freeport terminal accounted for about 20% of all U.S. nat-gas exports before the explosion on Jun 8 knocked it offline.  The Freeport LNG terminal receives about 2 bcf, or 2.5%, of the output from the lower 48 U.S. states.  The Freeport terminal said Aug 23 that it won't reopen until early to mid-November, later than a previous announcement of a restart in October.

Last Thursday's weekly EIA report was bearish for nat-gas prices as it showed U.S. nat gas inventories rose +111 bcf to 3,3421 bcf in the week ended Oct 14, above expectations of a +106 bcf increase and well above the 5-year average of +73 bcf.  However, inventories remain tight and are down -3.4% y/y and -5.2% below their 5-year seasonal average.

Baker Hughes reported last Friday that the number of active U.S. nat-gas drilling rigs in the week ended Oct 21 was unchanged at 157 rigs, falling back slightly from a 3-year high of 166 rigs the week ended Sep 9.  Active rigs have more than doubled from the record low of 68 rigs posted in July 2020 (data since 1987).
 

• Crude Moderately Lower on Concerns About Global Energy Demand
• Nat-Gas Prices Plunge on Increased Supply and Slack Demand
• Crude Oil Pushes Higher on Dollar Weakness
• Nat-Gas Prices Sink on a Rebuild of U.S. Inventories