Nat-Gas Prices Hammered by Warmer US Weather Forecasts

January Nymex natural gas (NGF26) on Tuesday closed down sharply by -0.338 (-6.88%).

Jan nat-gas prices sold off sharply on Tuesday for a second day, sinking to a 1-week low.  Forecasts of warmer US weather, which will reduce nat-gas heating demand, have prompted heavy liquidation in nat-gas futures.   Forecaster Atmospheric G2 said Tuesday that forecasts have shifted mainly warmer across the US for December 14-18, especially in the central US, and will remain above-normal for December 19-23.

Higher US nat-gas production is a bearish factor for prices.  On Tuesday, the EIA raised its forecast for 2025 US nat-gas production to 107.74 bcf/day from its November estimate of 107.70 bcf/day.  US nat-gas production is currently near a record high, with active US nat-gas rigs recently posting a 2-year high.

Last Friday, nat-ga prices rallied to a nearly 3-year nearest-futures high as late-autumn temperatures have remained well below normal and are expected to persist in the near term, boosting heating demand and shrinking nat-gas storage levels.  

US (lower-48) dry gas production on Tuesday was 111.9 bcf/day (+7.2% y/y), according to BNEF.  Lower-48 state gas demand on Tuesday was 108.8 bcf/day (+22.5% y/y), according to BNEF.  Estimated LNG net flows to US LNG export terminals on Tuesday were 18.1 bcf/day (+2.6% w/w), according to BNEF.

As a supportive factor for gas prices, the Edison Electric Institute reported last Wednesday that US (lower-48) electricity output in the week ended November 29 rose +2.11% y/y to 76,459 GWh (gigawatt hours), and US electricity output in the 52-week period ending November 29 rose +2.99% y/y to 4,289,746 GWh.

Last Thursday's weekly EIA report was bearish for nat-gas prices, as nat-gas inventories for the week ended November 28 fell by -12 bcf, a smaller draw than the market consensus of -18 bcf and than the 5-year weekly average of a -43 bcf draw.  As of November 28, nat-gas inventories were down -0.4% y/y and were +5.1% above their 5-year seasonal average, signaling adequate nat-gas supplies.  As of December 7, gas storage in Europe was 72% full, compared to the 5-year seasonal average of 82% full for this time of year.

Baker Hughes reported last Friday that the number of active US nat-gas drilling rigs in the week ending December 5 fell by -1 to 129, just below the 2.25-year high of 130 rigs set on November 28.  In the past year, the number of gas rigs has risen from the 4.5-year low of 94 rigs reported in September 2024.
 

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.