Nat-Gas Prices Rebound on Technical Short Covering

January Nymex natural gas (NGF26) on Friday closed up by +0.076 (+1.94%).

Jan nat-gas prices recovered from a 7-week low on Friday and settled sharply higher after oversold conditions sparked technical short covering in nat-gas futures.  Since posting a 3-year high on December 5, nat-gas prices have been in freefall as warmer US weather has curbed heating demand and allowed nat-gas storage to rebuild.  

Nat-gas prices initially moved lower on Friday amid an outlook for above-normal US weather that could curb nat-gas heating demand.  Forecaster Atmospheric G2 said Friday that forecasts shifted warmer across most of the US for December 24-28, with above-normal temperatures expected to continue across much of the country for December 29-January 2.  

Higher US nat-gas production is also bearish for prices.  Last Tuesday, the EIA raised its forecast for 2025 US nat-gas production to 107.74 bcf/day from its November estimate of 107.70 bcf/day.  US nat-gas production is currently near a record high, with active US nat-gas rigs recently posting a 2-year high.

US (lower-48) dry gas production on Friday was 1123.9 bcf/day (+8.8% y/y), according to BNEF.  Lower-48 state gas demand on Friday was 98.7 bcf/day (-1.0% y/y), according to BNEF.  Estimated LNG net flows to US LNG export terminals on Friday were 17.6 bcf/day (-2.7% w/w), according to BNEF.

As a supportive factor for gas prices, the Edison Electric Institute reported last Wednesday that US (lower-48) electricity output in the week ended December 6 rose +2.3% y/y to 85,330 GWh (gigawatt hours), and US electricity output in the 52-week period ending December 6 rose +2.84% y/y to 4,291,665 GWh.

Thursday's weekly EIA report was slightly bearish for nat-gas prices, as nat-gas inventories for the week ended December 12 fell by -167 bcf, a smaller draw than the market consensus of -176 bcf but larger than the 5-year weekly average of -96 bcf.  As of December 12, nat-gas inventories were down -1.2% y/y and were +0.9% above their 5-year seasonal average, signaling adequate nat-gas supplies.  As of December 17, gas storage in Europe was 68% full, compared to the 5-year seasonal average of 78% full for this time of year.

Baker Hughes reported Friday that the number of active US nat-gas drilling rigs in the week ending December 19 remained unchanged at 127, just below the 2.25-year high of 130 set on November 28.  In the past year, the number of gas rigs has risen from the 4.5-year low of 94 rigs reported in September 2024.