Nat-Gas Prices End Higher on Fund Short Covering Ahead of March Expiration

March Nymex natural gas (NGH24) on Monday closed +0.056 (+3.49%).

Nat-gas prices on Monday posted moderate gains on some fund short covering ahead of the expiration of the March futures contract on Tuesday.   The upside for nat-gas prices appears limited in the near term as the warm U.S. winter weather continues, which will curb heating demand for nat-gas and keep supplies elevated.  Maxar Technologies said Monday that "record challenging warmth" will move across the Midwest into the eastern U.S. from March 2-6.  

Nat-gas prices have collapsed this year and posted a 3-1/2 year nearest-futures low last Tuesday as an unusually mild winter curbed heating consumption for nat-gas and pushed inventories well above average.

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 Monday was 102.5 bcf/day (+2.1% y/y), according to BNEF.  Lower-48 state gas demand Monday was 78 bcf/day (-9.5% y/y), according to BNEF.  LNG net flows to U.S. LNG export terminals Monday were 13.9 bcf/day (+6.2% 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 Thursday that total U.S. electricity output in the week ended February 17 rose +1.8% y/y to 76,416 GWh (gigawatt hours), although cumulative U.S. electricity output in the 52-week period ending February 17 fell -0.2% y/y to 4,100,727 GWh.

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 65% full as of February 19, above the 5-year seasonal average of 49% 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). 

More Natural Gas News from Barchart

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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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