April Nymex natural gas (NGJ24) on Wednesday closed +0.077 (+4.26%).
Nat-gas prices on Wednesday climbed to a 3-week high as funds rolled long positions into the April nat-gas contract from the March contract that expired on Tuesday. However, above-average U.S. winter temperatures may keep nat-gas prices from a sustainable rally in the near term. NatGasWeather said Wednesday that weather forecasts for much of the U.S. "remain exceptionally warm and bearish" for March 1-13.
Nat-gas prices have collapsed this year and plunged to a 3-1/2 year nearest-futures low (H24) this week as an unusually mild winter curbed heating consumption for nat-gas and pushed inventories well above average. 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.
Nat-gas prices are also under pressure from the announcement by the Freeport LNG nat-gas export terminal in Texas on January 26 that it was forced to shut down one of its three production units for a month for repairs after extreme cold in Texas damaged equipment. The closure of the unit will limit U.S. nat-gas exports and increase U.S. nat-gas inventories.
Lower-48 state dry gas production Wednesday was 101.8 bcf/day (+1.6% y/y), according to BNEF. Lower-48 state gas demand Wednesday was 81.5 bcf/day (-4.9% y/y), according to BNEF. LNG net flows to U.S. LNG export terminals Wednesday were 13.8 bcf/day (+5.1% w/w), according to BNEF.
An increase in U.S. electricity output is positive for nat-gas demand from utility providers. The Edison Electric Institute reported Wednesday that total U.S. electricity output in the week ended February 24 rose +1.7% y/y to 75,613 GWh (gigawatt hours), although cumulative U.S. electricity output in the 52-week period ending February 24 was unchanged y/y at 4,101,977 GWh.
The consensus is for Thursday's weekly EIA nat-gas inventories to fall to -84 bcf, a much smaller draw than the five-year average for this time of year of -143 bcf.
Last Thursday's weekly EIA report was bearish for nat-gas prices as nat-gas inventories for the week ended February 16 fell -60 bcf, close to expectations of -59 bcf but a much smaller draw than the five-year average for this time of year at -168 bcf. As of February 16, nat-gas inventories were up +12.5% y/y and were +22.3% above their 5-year seasonal average, signaling ample nat-gas supplies. In Europe, gas storage was 63% full as of February 26, above the 5-year seasonal average of 47% 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 February 23 fell by -1 rig to 120 rigs, moderately 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).
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.
