Nat-Gas Prices Rebound on Expectations for a Smaller Weekly Build in Gas Storage

November Nymex natural gas (NGX26) on Wednesday closed up +0.015 (+0.50%).

Nat-gas prices recovered from early losses on Wednesday and settled higher on expectations for a smaller-than-average build in weekly gas storage.  The consensus is that Thursday’s weekly EIA nat-gas inventories rose +63 bcf for the week ending September 25, below the 5-year average of +80 bcf.

Nat-gas prices initially moved lower on Wednesday as forecasts for seasonal US weather could potentially limit nat-gas demand for heating or air conditioning.  On Wednesday, the Commodity Weather Group said normal seasonal weather is expected across the eastern and southern US from October 5-14. 

US (lower-48) dry gas production on Wednesday was 110.4 bcf/day (+1.3% y/y), according to BNEF.  Lower-48 state gas demand on Wednesday was 71.6 bcf/day (+0.6% y/y), according to BNEF.  Estimated LNG net flows to US LNG export terminals on Wednesday were 18.7 bcf/day (-0.5% w/w), according to BNEF.

A bearish medium-term factor for nat-gas prices is the market's expectation that a “Super El Niño” will bring warmer-than-normal temperatures to the Northern Hemisphere this fall and winter, reducing heating demand for nat-gas. 

As a negative factor for gas prices, the Edison Electric Institute reported Wednesday that US (lower-48) electricity output in the week ended September 26 fell -0.85% y/y to 83,811 GWh (gigawatt hours).  However, US electricity output in the 52 weeks ending September 26 rose +3.27% y/y to 4,411,446 GWh.

As a bearish factor, the US Energy Information Administration (EIA) on August 11 projected that US nat-gas storage levels will swell to 3,985 bcf at the end of October, the highest level in 10 years and 5% above the five-year average.  Last Monday, the EIA raised its 2027 US dry natural gas production estimate to 116.0 bcf/day from 115.3 bcf/day projected in July.

Last Thursday's weekly EIA report was mixed for nat-gas prices, as it showed a +53 bcf increase in US nat-gas inventories for the week ended September 18, above expectations of +51 but below the 5-year weekly average of +76 bcf.  As of September 18, nat-gas inventories were down -4.5% y/y and +2.9% above their 5-year seasonal average, signaling adequate nat-gas supplies. As of September 27, gas storage in Europe was 71% full, compared to the 5-year seasonal average of 87% full for this time of year.

Baker Hughes reported last Friday that the number of active US nat-gas drilling rigs in the week ended September 25 rose by +1 to a new 3-year high of 135 rigs.