Nat-Gas Prices Edge Higher as US Producers Reduce Output

December Nymex natural gas (NGZ26) closed up +0.039 (+1.37%) on Tuesday.

Dec nat-gas prices edged higher on Tuesday as US producers reduced output in response to low prices, potentially limiting the buildup of storage ahead of the winter heating season, a sign of strong nat-gas demand.  According to BNEF, US (lower-48) dry gas production on Tuesday fell to 109.2 bcf/day, a 9-month low.

Gains in nat-gas prices were limited Tuesday on the prospects for continued warm weather to curb heating demand for nat-gas.  The Commodity Weather Group said Tuesday that forecasts are showing persistently above-normal temperatures in the coming weeks, with above-average temperatures expected across most of the US through November 17.

Last Monday, nat-gas prices sank to a 6.25-month nearest-futures low (X26) as warm US autumn weather has curbed heating demand for nat-gas and allowed US storage levels to climb. Also, expectations that the “Super El Niño” will bring warmer-than-normal temperatures to the Northern Hemisphere this winter and reduce nat-gas heating demand are weighing on prices. 

US (lower-48) dry gas production on Tuesday was 109.2 bcf/day (-1.6% y/y), according to BNEF.  Lower-48 state gas demand on Tuesday was 71.9 bcf/day (-6.2% y/y), according to BNEF.  Estimated LNG net flows to US LNG export terminals Tuesday were 19.0 bcf/day (-2.5% w/w), according to BNEF.

As a positive factor for gas prices, the Edison Electric Institute reported last Wednesday that US (lower-48) electricity output in the week ended October 24 rose +1.0% y/y to 73,484 GWh (gigawatt-hours).  Also, US electricity output in the 52 weeks ending October 24 rose +3.3% y/y to 4,422,630 GWh.

Last Thursday's weekly EIA report was bearish for nat-gas prices, showing an increase of +80 bcf in the week ended October 23, above the +72 bcf consensus and the +77 bcf 5-year average.  As of October 23, nat-gas inventories were down -4.1% y/y and +1.0% above their 5-year seasonal average, signaling adequate nat-gas supplies.  As of November 1, gas storage in Europe was 75% full, compared to the 5-year seasonal average of 90% 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 23 fell by -2 to 130 rigs, just below the 3-year high of 135 rigs posted on September 25.