Nat-Gas Prices Retreat on Forecasts for Warm US Temps

Nat-gas prices gave up an early advance on Monday, fell to a 2-week low, and settled lower.  The outlook for mild US autumn temperatures that could curb nat-gas heating demand is weighing on prices.  The Commodity Weather Group forecasts above-normal temperatures for the eastern two-thirds of the US through the end of this month.

Nat-gas prices initially moved higher on Monday on ramped-up US nat-gas exports, which shrink domestic supplies.  Estimated LNG net flows to US LNG export terminals on Monday rose to a nearly 2-year high of 21.2 bcf/day.   Nat-gas prices also had positive carryover on Monday from a rally in European nat-gas prices 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 Monday was 114.1 bcf/day (+6.1% y/y), according to BNEF.  Lower-48 state gas demand on Monday was 71.1 bcf/day (+8.0% y/y), according to BNEF.  Estimated LNG net flows to US LNG export terminals on Monday were 21.2 bcf/day (+6.6% 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 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.

Last 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 14, 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 16 rose by +1 to 133 rigs, just below the 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.