Nat-Gas Prices Post 3-1/2 Year Low on Warm U.S. Winter Temps

March Nymex natural gas (NGH24) on Monday closed -0.079 (-4.28%).

Nat-gas prices on Monday extended their month-long decline and posted a 3-1/2 year nearest-futures low.  Nat-gas prices are selling off as updated weather forecasts for much of the U.S. are warmer than previously estimated, reducing heating demand for nat-gas and keeping inventories elevated.  Forecaster Maxar Technologies said on Monday that most of the U.S. is expected to have above-normal temperatures from Feb 22-26, with the central U.S. well above normal.  

Nat-gas prices are also under pressure after the Freeport LNG nat-gas export terminal in Texas said on January 26 that it shut down one of its three production units for a month for repairs after extreme cold in Texas damaged equipment.  The closure of one of the units will limit U.S. nat-gas exports and increase U.S. nat-gas inventories.

Lower-48 state dry gas production Monday was 103.9 bcf/day (+3.2% y/y), according to BNEF.  Lower-48 state gas demand Monday was 91.0 bcf/day (-0.8% y/y), according to BNEF.  LNG net flows to U.S. LNG export terminals Monday were 14.1 bcf/day (+6.4% 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.

A decline in U.S. electricity output is negative for nat-gas demand from utility providers.  The Edison Electric Institute reported last Wednesday that total U.S. electricity output in the week ended February 3 fell -8.1% y/y to 77,013 GWh (gigawatt hours), and cumulative U.S. electricity output in the 52-week period ending February 3 fell -0.4% y/y to 4,099,080 GWh.

Last Thursday's weekly EIA report was neutral to slightly bearish for nat-gas prices as nat-gas inventories for the week ended February 2 fell -75 bcf, right on expectations but a much smaller draw than the five-year average for this time of year at -193 bcf.  As of February 2, nat-gas inventories were up +9.2% y/y and were +10.6% above their 5-year seasonal average, signaling ample nat-gas supplies.  In Europe, gas storage was 68% full as of February 6, above the 5-year seasonal average of 54% 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 9 rose +4 rigs to a 5-month high of 121 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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