February Nymex natural gas (NGG24) on Wednesday closed -0.151 (-4.73%).
Nat-gas prices on Wednesday fell sharply and posted their first decline in the last seven sessions. Fund profit-taking emerged in nat-gas prices on the expectation that U.S. nat-gas supplies would remain ample despite the arrival of Arctic cold moving into the lower 48 U.S. states. Current U.S. nat-gas supplies are abundant as EIA nat-gas inventories are +13.0% above their 5-year seasonal average.
On Tuesday, nat-gas prices soared to a 2-month high on the outlook for below-normal U.S. temperatures to boost heating demand for nat-gas. NatGasWeather predicts that an arctic air mass will "advance aggressively across the U.S. this weekend and next week," bringing cold weather across the northern part of the U.S. and the South, including Texas.
Lower-48 state dry gas production Wednesday was 102.3 bcf/day (+1.6% y/y), according to BNEF. Lower-48 state gas demand Wednesday was 101.2 bcf/day (+10.8% y/y), according to BNEF. LNG net flows to U.S. LNG export terminals Wednesday were 14.7 bcf/day (+3.7% 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 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 -121 bcf.
Last Thursday's weekly EIA report was bearish for nat-gas prices as nat-gas inventories for the week ended December 29 fell -14 bcf, a smaller draw than expectations of -32 bcf and well above the 5-year average draw of -97 bcf. As of December 29, nat-gas inventories were up +20.2% y/y and were +13.0% above their 5-year seasonal average, signaling ample nat-gas supplies. In Europe, gas storage was 84% full as of January 7, above the 5-year seasonal average of 71% 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 5 fell -2 rigs to 118 rigs, just above the 19-month low of 113 rigs posted September 8. Active rigs have fallen back since climbing to a 4-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.
