Nat-Gas Prices Fall to 2-month Low on Warm Forecasts But Recover Modestly on EIA Report

November Nymex natural gas (NGX26) on Thursday closed up +0.006 (+0.22%).

Nov nat-gas prices on Thursday fell to a new contract low and a 2-month nearest-futures low, but then recovered modestly on some short-covering and ended the day higher.  The recovery was sparked by the supportive weekly EIA report, which showed an increase of +77 bcf, slightly below the analyst consensus of +78 bcf.

Nat-gas prices have plunged this week on forecasts for above-average US autumn temperatures that could curb nat-gas heating demand.  The Commodity Weather Group said Thursday that forecasts have shifted warmer, with above-average temperatures expected across the Midwest and East through November 5.

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

US (lower-48) dry gas production on Thursday was 113.8 bcf/day (+5.3% y/y), according to BNEF.  Lower-48 state gas demand on Thursday was 72.1 bcf/day (-2.5% y/y), according to BNEF.  Estimated LNG net flows to US LNG export terminals on Thursday were 20.6 bcf/day (+4.7% w/w), according to BNEF.

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 last 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 slightly bullish for nat-gas prices, showing a +77 bcf increase in US nat-gas inventories for the week ended October 16, below expectations of +78 and below the 5-year weekly average of +87 bcf.  As of October 16, nat-gas inventories were down -4.3% y/y and +1.0% above their 5-year seasonal average, signaling adequate nat-gas supplies. As of October 18, gas storage in Europe was 75% full, compared to the 5-year seasonal average of 89% 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 October 16 rose by +1 to 133 rigs, just below the 3-year high of 135 rigs on September 25.