Smaller-Than-Expected Weekly Storage Build Lifts Nat-Gas Prices

November Nymex natural gas (NGX26) on Thursday closed up +0.038 (+1.19%).

Nat-gas prices settled higher on Thursday after weekly US nat-gas storage levels rose less than expected. The EIA reported Thursday that nat-gas inventories rose by +67 bcf the week ended October 9, below expectations of +74 bcf and well below the five-year average for the week of +90 bcf. 

Nat-gas prices fell from their highs Thursday on forecasts for above-normal US temperatures, potentially reducing heating demand for nat-gas.  The Commodity Weather Group said Thursday that above-normal temperatures are projected for the eastern two-thirds of the US for October 20-29.

Gas prices also have carry-over support from a rally in European nat-gas prices on Wednesday to a 3.75-year high.  European nat-gas prices are surging 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 Thursday was 111.5 bcf/day (+2.4% y/y), according to BNEF.  Lower-48 state gas demand on Thursday was 71.3 bcf/day (+0.1% y/y), according to BNEF.  Estimated LNG net flows to US LNG export terminals on Thursday were 19.8 bcf/day (+8.2% 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 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 bullish for nat-gas prices, showing a +67 bcf increase in US nat-gas inventories for the week ended October 9, below expectations of +74 and below the 5-year weekly average of +90 bcf.  As of October 9, nat-gas inventories were down -4.1% y/y and +1.3% above their 5-year seasonal average, signaling adequate nat-gas supplies.  As of October 13, 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.