Nat-Gas Prices Weighed Down by Warmer U.S. Weather Forecasts

February Nymex natural gas (NGG24) on Wedneday closed -0.030 (-1.03%).

Nat-gas prices on Wednesday closed moderately lower as they extended Tuesday's sharp losses to a 1-week low.  A shift in U.S. weather forecasts to warmer temperatures has fueled long liquidation pressures in nat-gas futures.  On Wednesday, NatGasWeather said "much warmer" U.S. temperatures are expected for Jan 23-30, which would curb heating demand for nat-gas.

The current arctic temperatures engulfing the U.S. have curtailed nat-gas output and led to a surge in heating demand.  Lower-48 state dry gas production Wednesday was 95.3 bcf/day (-5.9% y/y), according to BNEF.  Lower-48 state gas demand Wednesday was 122 bcf/day (+38.3% y/y), according to BNEF.  LNG net flows to U.S. LNG export terminals Wednesday were 12.3 bcf/day (-16.9% w/w), according to BNEF.

The U.S. Climate Prediction Center said there is a greater than 55% chance the current El Nino weather pattern will remain strong in the Northern Hemisphere through March, keeping temperatures above average and weighing on nat-gas prices.  AccuWeather said El Nino will limit snowfall across Canada this season in addition to causing above-normal temperatures across North America.

An increase in U.S. electricity output is positive for nat-gas demand from utility providers.  The Edison Electric Institute reported last Wednesday that total U.S. electricity output in the week ended January 6 rose +9.0% y/y to 79,691 GWh (gigawatt hours), although cumulative U.S. electricity output in the 52-week period ending January 6 fell -1.2% y/y to 4,082,730 GWh.

The consensus is that Thursday's weekly EIA nat-gas inventories will fall by -165 bcf, above the 5-year average draw for this time of year of -126 bcf.

Last Thursday's weekly EIA report was bullish for nat-gas prices as nat-gas inventories for the week ended January 5 fell -140 bcf, a larger draw than expectations of -121 bcf and well above the 5-year average draw of -89 bcf.  As of January 5, nat-gas inventories were up +15.0% y/y and were +11.6% above their 5-year seasonal average, signaling ample nat-gas supplies.  In Europe, gas storage was 79% full as of January 15, above the 5-year seasonal average of 67% full for this time of year.

Baker Hughes reported last Friday that the number of active U.S. nat-gas drilling rigs in the week ending January 12 fell -1 rig to 117 rigs, just above the 2-year low of 113 rigs posted September 8.  Active rigs have fallen back since climbing to a 4-1/2 year high of 166 rigs in Sep 2022 from the pandemic-era record low of 68 rigs posted in July 2020 (data since 1987).
 

• Nat-Gas Prices Plunge on Forecasts for Frigid U.S. Temps to Dissipate
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• Nat-Gas Prices Slump on Expectations for U.S. Gas Inventories to Remain Abundant