Feb Nymex natural gas (NGG23) on Friday closed up +0.165 (+5.60%).
Feb nat-gas Friday recovered from early losses and closed sharply higher on fund short covering ahead of Friday's expiration of the New York Mercantile Exchange's Feb nat-gas contract. Â Nat-gas prices Friday initially opened lower after updated weather forecasts shifted warmer for most of the U.S. starting Feb 1, reducing heating demand for nat-gas. Â Also, a report Friday from Rystad Energy weighed on crude prices when Rystad said nat-gas prices might fall to as low as $2 per million British thermal units in the next few months as rising supplies are poised to outpace demand.
EBW Analytics Group said in a note to clients Wednesday that nat-gas prices are facing "extended downside risks over the next 30-45 days" due to a combination of strong production, constrained export demand because of the Freeport LNG terminal shutdown, growing inventory surpluses, and mild winter temperatures.
Nat-gas prices have fallen sharply over the past month and posted a 1-3/4 year nearest-futures low Thursday as abnormally mild weather across the northern hemisphere erodes heating demand for nat-gas. Â The warm temperatures this winter have caused rising nat-gas inventories in Europe and the U.S., with gas storage across Europe currently 74% full as of Thursday, far above the 5-year average for this time of year of 58%. Â Also, U.S. nat-gas inventories are +4.9% above their 5-year average as of Jan 20, the most in nearly two years
A negative factor for nat-gas prices is the continued closure of the Freeport LNG export terminal. Â On Jan 12, the Rapidian Energy Group said that the Freeport LNG export terminal, closed since an explosion on June 8, will likely be offline "for several more months." Â The report cited the delay in the "extensive personnel training" that is being required by federal regulators overseeing the restart of the terminal. Â The closure of the facility has been bearish for nat-gas prices since the reduction in LNG exports has boosted U.S. nat-gas inventories. Â The Freeport terminal normally accounts for about 20% of all U.S. nat-gas exports and receives about 2 bcf, or 2.5%, of the output from the lower 48 U.S. states.
Lower-48 state dry gas production on Friday was 100.7 bcf (+6.6% y/y), modestly below the record high of 103.6 bcf posted on Oct 3, according to BNEF. Â Lower-48 state gas demand Friday was 101.0 bcf/day, down by -7.4% y/y, according to BNEF. Â On Friday, LNG net flows to U.S. LNG export terminals were 12.8 bcf/day, up +0.5% w/w.
A decline in U.S. electricity output is bearish for nat-gas demand from utility providers. Â The Edison Electric Institute reported Wednesday that total U.S. electricity output in the week ended Jan 21 fell -9.7% y/y to 76,887 GWh (gigawatt hours). Â However, cumulative U.S. electricity output in the 52-week period ending Jan 21 rose +1.9% y/y to 4,121,985 GWh.
Nat-gas prices have support as EU countries agreed to cut nat-gas demand from Russia by 15% by early 2023. Â Also, Russia recently slashed nat-gas exports to Europe to 20% of capacity, putting upward pressure on European nat-gas prices.
Thursday's weekly EIA report was bullish for nat-gas prices since it showed U.S. nat gas inventories fell -91 bcf, more than expectations of -84 bcf. Â However, nat-gas inventories are now +4.9% above their 5-year seasonal average, the most in nearly two years.
Baker Hughes reported Friday that the number of active U.S. nat-gas drilling rigs in the week ended Jan 27 rose by +4 to 160 rigs, modestly below the 3-1/4 year high of 166 rigs posted in the week ended Sep 9. Â Active rigs have more than doubled from the record low of 68 rigs posted in July 2020 (data since 1987).
More Energy News from Barchart
- 3 Calls to Buy as Chevron’s $75 Billion Buyback Gets Options Unusually Active
- Crude Falls on Dollar Strength and Technical Selling
- Signs of Stronger Global Energy Demand Supports Crude Prices
- Nat-Gas Prices Sink Amid Mild Winter Weather
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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