Warm US Autumn Temps Weigh on Nat-Gas Prices

November Nymex natural gas (NGX26) on Friday closed down -0.120 (-3.71%).

Nat-gas prices retreated on Friday and fell to a 1.5-week low.  Nat-gas prices were pressured by the outlook for mild US autumn temperatures to reduce heating demand for nat-gas.  The Commodity Weather Group forecasts above-normal temperatures for the eastern two-thirds of the US through the end of this month.

Nat-gas prices recovered from their worst level on Friday, supported by positive carryover from a rally in European nat-gas prices to a 3.75-year high.  European nat-gas prices are surging amid tight supplies ahead of the winter season, when demand typically doubles, potentially boosting European demand for US gas supplies. 

US (lower-48) dry gas production on Friday was 113.9 bcf/day (+5.0% y/y), according to BNEF.  Lower-48 state gas demand on Friday was 71.5 bcf/day (+1.1% y/y), according to BNEF.  Estimated LNG net flows to US LNG export terminals on Friday were 20.5 bcf/day (+6.2% 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 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.  On September 21, the EIA raised its 2027 US dry natural gas production estimate to 116.0 bcf/day from 115.3 bcf/day projected in July.

As a positive factor for gas prices, the Edison Electric Institute reported Thursday that US (lower-48) electricity output in the week ended October 10 rose +2.6% y/y to 79,435 GWh (gigawatt-hours).  Also, US electricity output in the 52 weeks ending October 10 rose +3.2% y/y to 4,416,179 GWh.

Thursday's weekly EIA report was bullish for nat-gas prices, showing a +67 bcf increase in US nat-gas inventories for the week ended October 9, below expectations of +74 and below the 5-year weekly average of +90 bcf.  As of October 9, nat-gas inventories were down -4.1% y/y and +1.3% above their 5-year seasonal average, signaling adequate nat-gas supplies.  As of October 14, gas storage in Europe was 74% full, compared to the 5-year seasonal average of 89% full for this time of year.

Baker Hughes reported Friday that the number of active US nat-gas drilling rigs in the week ended October 16 rose by +1 to 133 rigs, just below the 3-year high of 135 rigs on September 25.