Colder US Weather and Reduced US Output Lifts Nat-Gas Prices

December Nymex natural gas (NGZ26) closed up +0.078 (+2.42%) on Tuesday.

Dec nat-gas prices added to Monday’s sharp gains on Tuesday and posted a 4-week high on the prospects of colder US temperatures that could boost heating demand for nat-gas.  The Commodity Weather Group said Tuesday that forecasts shifted colder, with below-average temperatures expected across the southeast US from November 15-19.

Also, a decline in US nat-gas production supported prices after US dry gas production on Tuesday fell to 110.9 bcf/day, a 9-month low. 

Nat-gas prices fell from their best level Tuesday after the EIA in its monthly Short-Term Energy Outlook raised its US 2026 nat-gas production estimate to 113 bcf/day from a previous estimate of 112.2 bcf/day. 

Excessively short fund positions in NY nat-gas futures could add fuel to any short-covering rally. Last Friday’s weekly Commitment of Traders (COT) report showed funds boosted their short NY nat-gas positions by 11,426 in the week ended November 3 to a record net-short position of 636,576 (data from 2013).

Nat-gas prices sank to a 6.5-month nearest-futures low (X26) late last month 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 110.9 bcf/day (-0.4% y/y), according to BNEF.  Lower-48 state gas demand on Tuesday was 77.9 bcf/day (-20.9% y/y), according to BNEF.  Estimated LNG net flows to US LNG export terminals Tuesday were 20.4 bcf/day (+6.2% 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 31 rose +1.0% y/y to 74,445 GWh (gigawatt-hours).  Also, US electricity output in the 52 weeks ending October 31 rose +3.3% y/y to 4,423,346 GWh.

Last Thursday's weekly EIA report was bearish for nat-gas prices, showing an increase of +77 bcf in the week ended October 30, above the 5-year average of +61 bcf.  As of October 30, nat-gas inventories were down -2.9% y/y and +1.4% above their 5-year seasonal average, signaling adequate nat-gas supplies.  As of November 8, gas storage in Europe was 72% 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 November 6 rose by +1 to 131 rigs, just below the 3-year high of 135 rigs posted on September 25.