Nat-Gas Prices Retreat as Warm US Temps Curb Heating Demand

November Nymex natural gas (NGX26) on Wednesday closed down -0.085 (-2.59%).

Nat-gas prices fell from a 3-month nearest-futures high on Wednesday and settled sharply lower after forecasts for above-normal US temperatures sparked long liquidation in nat-gas futures.  The Commodity Weather Group said Wednesday that it expects above-average temperatures to span the central third of the US from October 19-23, potentially curbing heating demand for nat-gas.

Nat-gas prices initially moved higher on Wednesday on expectations for a smaller-than-average build in weekly storage.  The consensus is that Thursday’s EIA nat-gas inventories increased +74 bcf in the week ended October 9, below the five-year average of +90 bcf.  Gas prices also found support on Wednesday as European nat-gas prices surged to a 3.75-year high 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 Wednesday was 111.2 bcf/day (+2.9% y/y), according to BNEF.  Lower-48 state gas demand on Wednesday was 72.7 bcf/day (+3.8% y/y), according to BNEF.  Estimated LNG net flows to US LNG export terminals on Wednesday were 19.7 bcf/day (+9.6% 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 last Wednesday that US (lower-48) electricity output in the week ended October 3 rose +3.32% y/y to 83,661 GWh (gigawatt-hours).  Also, US electricity output in the 52 weeks ending October 2 rose +3.27% y/y to 4,414,135 GWh.

Last Thursday's weekly EIA report was slightly bearish for nat-gas prices, showing an +85 bcf increase in US nat-gas inventories for the week ended October 2, above expectations of +82 but below the 5-year weekly average of +96 bcf.  As of October 2, nat-gas inventories were down -3.9% y/y and +2.0% above their 5-year seasonal average, signaling adequate nat-gas supplies. As of October 12, 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 last Friday that the number of active US nat-gas drilling rigs in the week ended October 9 fell by 1 to 132 rigs, down from a 3-year high of 135 rigs on September 25.

On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.