Nat-Gas Prices Rebound as US Weather Forecasts Cool

January Nymex natural gas (NGF26) on Wednesday closed up by +0.138 (+3.55%).

Jan nat-gas prices rallied sharply on Wednesday after cooler US weather forecasts sparked short covering in nat-gas futures.  Forecaster Atmospheric G2 said Wednesday that forecasts shifted colder in the East and not as warm in the southern states for December 27-31, potentially boosting nat-gas heating demand.

Nat-gas prices also have support on expectations for an above-average draw in weekly storage levels.  The consensus is that Thursday's weekly EIA nat-gas inventories will decline by -176 bcf for the week ended December 12, well above the five-year average of a -96 bcf draw for this time of year.  

On Tuesday, nat-gas prices fell to a 7-week low due to above-normal US temperatures, which curbed nat-gas heating demand.  Since posting a 3-year high on December 5, nat-gas prices have been in freefall as warmer US weather has curbed heating demand and allowed nat-gas storage to rebuild.  

Higher US nat-gas production is also bearish for prices.  Last Tuesday, the EIA raised its forecast for 2025 US nat-gas production to 107.74 bcf/day from its November estimate of 107.70 bcf/day.  US nat-gas production is currently near a record high, with active US nat-gas rigs recently posting a 2-year high.

US (lower-48) dry gas production on Wednesday was 112.4 bcf/day (+7.4% y/y), according to BNEF.  Lower-48 state gas demand on Wednesday was 94.7 bcf/day (+5.0% y/y), according to BNEF.  Estimated LNG net flows to US LNG export terminals on Wednesday were 18.1 bcf/day (+0.8% w/w), according to BNEF.

As a supportive factor for gas prices, the Edison Electric Institute reported last Wednesday that US (lower-48) electricity output in the week ended December 6 rose +2.3% y/y to 85,330 GWh (gigawatt hours), and US electricity output in the 52-week period ending December 6 rose +2.84% y/y to 4,291,665 GWh.

Last Thursday's weekly EIA report was bullish for nat-gas prices, as nat-gas inventories for the week ended December 5 fell by -177 bcf, a larger draw than the market consensus of -170 bcf and than the 5-year weekly average of -89 bcf.  As of December 5, nat-gas inventories were down unchanged y/y and were +2.8% above their 5-year seasonal average, signaling adequate nat-gas supplies.  As of December 15, gas storage in Europe was 69% full, compared to the 5-year seasonal average of 78% full for this time of year.

Baker Hughes reported last Friday that the number of active US nat-gas drilling rigs in the week ending December 12 fell by -2 to 127 rigs, just below the 2.25-year high of 130 rigs set on November 28.  In the past year, the number of gas rigs has risen from the 4.5-year low of 94 rigs reported in September 2024.
 

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.