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Nat-Gas Prices Plunge on Forecasts for Above-Average U.S. Temps

Barchart - Wed Dec 6, 2023

January Nymex natural gas (NGF24) on Wednesday closed down -0.141 (-5.20%).

Nat-gas prices Wednesday sold off sharply and posted a 3-month low.  Nat-gas prices fell on updated weather forecasts calling for above-average temperatures that would reduce heating demand for nat-gas.  Forecaster Maxar Technologies said Wednesday that U.S. weather forecasts are shifting warmer "pretty much across the board" for the U.S. from Dec 11-15.  

Lower-48 state dry gas production Wednesday was 104.2 bcf/day (+3.8% y/y), according to BNEF.  Lower-48 state gas demand Wednesday was 92.8 bcf/day (+6.6% y/y), according to BNEF.  LNG net flows to U.S. LNG export terminals Wedneday were 14.6 bcf/day (+6.4% w/w), according to BNEF.

High inventories caused by carryover from the mild 2022/23 winter and weak heating demand have undercut nat-gas prices.  Gas storage across Europe was 94% full as of December 3, above the 5-year seasonal average of 84% full for this time of year.  U.S. nat-gas inventories as of November 24 were +8.6% above their 5-year seasonal average.

An increase in U.S. electricity output is bullish for nat-gas demand from utility providers.  The Edison Electric Institute reported Wednesday that total U.S. electricity output in the week ended December 2 rose +3.7% y/y to 77,956 GWh (gigawatt hours), although cumulative U.S. electricity output in the 52-week period ending December 2 fell -0.7% y/y to 4,092,931 GWh.

The consensus is for Thursday's weekly EIA nat-gas inventories to fall by -109 bcf.

Last Thursday's weekly EIA report was bearish for nat-gas prices as nat-gas inventories for the week ended November 24 unexpectedly rose +10 bcf versus expectations of a -6 bcf decline and a 5-year average draw of -44 bcf.  As of November 24, nat-gas inventories were up +10.1% y/y and were +8.6% above their 5-year seasonal average, signaling ample nat-gas supplies.

Baker Hughes reported last Friday that the number of active U.S. nat-gas drilling rigs in the week ended December 1 fell -1 rig to 116 rigs, just above the 19-month low of 113 rigs posted September 8.  Active rigs this year have fallen back after climbing to a 4-year high of 166 rigs in Sep 2022 from the pandemic-era record low of 68 rigs posted in July 2020 (data since 1987).

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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.