Nat-Gas Prices Surge as Hot U.S. Temps to Boost Power Demand for Air-Conditioning

July Nymex natural gas (NGN22) on Monday closed up +0.799 (+9.37%).

Nat-gas prices Monday rallied to a 1-week high and settled sharply higher on expectations for hot U.S. temperatures to boost nat-gas demand from electricity providers to power increased air-conditioning usage.  The Commodity Weather Group on Monday said that above-normal temperatures are expected in the U.S. South, West, and parts of the Midwest through June 15.  Also, lower U.S. nat-gas output is supportive for prices after BNEF data show U.S. lower-48 nat-gas production on Monday at 94.8 bcf, down -1.7% w/w and the lowest output in 2-1/2 weeks.

Nat-gas prices have support after Russia recently said that foreign buyers of its gas would need to open special ruble and foreign currency accounts by the end of this month to buy Russian gas.  Russia has already halted nat-gas shipments to Demark, Finland, Bulgaria, the Netherlands, and Poland for not paying for Russian gas in rubles.

Strong foreign demand for U.S. nat-gas supplies is bullish for prices after BNEF data showed gas flows to U.S. export terminals Monday surged by +45% y/y to 12.664 bcf.

Weakness in U.S. domestic nat-gas demand is bearish for prices as BNEF data shows lower 48-state nat-gas demand Monday was 61.1 bcf, down -2% y/y.

A decline in U.S. electricity output is bearish for nat-gas demand from utility providers.  The Edison Electric Institute reported last Thursday that total U.S. electricity output in the week ended May 28 fell -2.2% y/y to 75,320 GWh (gigawatt hours).  However, cumulative U.S. electricity output in the 52-week period ending May 28 rose +2.6% y/y to 4,090,355 GWh.

As a longer-term bullish factor, the ongoing drought in the U.S. West has drained rivers and reservoirs, with Lake Mead recently falling to a record low.  That threatens to curb power produced by hydropower dams and will prompt electric utilities in the U.S. West to boost usage of nat-gas to increase electricity to satisfy power demand for air-conditioning this summer.  The U.S. Energy Information Administration said last Wednesday that the drought could drive down generation at California's hydro dams between June and September to 7 million megawatt-hours, well below the 13 million megawatt-hour median for summer generation between 1980 and 2020.

Last Thursday's weekly EIA report was bearish for nat-gas prices as it showed U.S. nat gas inventories rose +90 bcf to 1,902 bcf in the week ended May 27, above expectations of +87 bcf, although below the 5-year average for this time of year at +100 bcf.  Inventories remain tight and are down -17.8% y/y and -15.1% below their 5-year average.

Baker Hughes reported last Friday that the number of active U.S. nat-gas drilling rigs in the week ended June 3 was unchanged at a 2-1/2 year high of 151 rigs.  Active rigs have recovered sharply from the record low of 68 rigs posted in July 2020 (data since 1987).