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Nat-Gas Prices Under Pressure from Mild U.S. Temperatures

Barchart - Fri May 26, 2023

June Nymex natural gas (NGM23) on Thursday closed down -0.126 (-5.46%).

Jun nat-gas Friday dropped to a 2-week low and closed sharply lower.  Forecasts for seasonal U.S. temperatures that will reduce nat-gas demand from electricity providers to power air conditioning weighed on nat-gas prices.  The Commodity Weather Group is forecasting mild temperatures across the southern and eastern U.S. over the next 15 days.  Also, a plunge in European nat-gas price Friday to a 2-year low is undercutting U.S. gas prices.  

Nat-gas prices fell sharply starting in December and posted a 2-1/2 year nearest-futures low (NGK23) Apr 14 as abnormally mild weather across the northern hemisphere this past winter eroded heating demand for nat-gas.  January was the sixth-warmest across the contiguous 48 U.S. states in data from 1895.  This winter's warm temperatures have caused rising nat-gas inventories in Europe and the United States.  Gas storage across Europe was 66% full as of May 21, well above the 5-year seasonal average of 47% full for this time of year.  Nat-gas inventories in the U.S. were +17.0% above their 5-year seasonal average as of May 19.

Lower-48 state dry gas production on Friday was 100.4 bcf (+4.1% y/y), just below the record high of 101.7 bcf posted on Apr 23, according to BNEF.  Lower-48 state gas demand Friday was 63.6 bcf/day, up +3.5% y/y, according to BNEF.  On Friday, LNG net flows to U.S. LNG export terminals were 13.6 bcf, up +11.4% w/w.  On Apr 16, LNG net flows to U.S. LNG export terminals rose to a record 14.9 bcf/day as nat-gas exports continue to increase from the Freeport LNG terminal as the terminal was partially reopened after being closed since last June because of an explosion.

A decline in U.S. electricity output is bearish for nat-gas demand from utility providers.  The Edison Electric Institute reported Wednesday that total U.S. electricity output in the week ended May 20 fell -7.3% y/y to 74,044 GWh (gigawatt hours).  Also, cumulative U.S. electricity output in the 52-week period ending May 20 was unchanged y/y to 4,093,486 GWh.

Thursday's weekly EIA report was bullish for nat-gas prices since it showed U.S. nat gas inventories rose +96 bcf, below expectations of +100 bcf but right on the five-year average for this time of year.  Nat-gas inventories as of May 19 are +17.0% above their 5-year seasonal average.

Baker Hughes reported Friday that the number of active U.S. nat-gas drilling rigs in the week ended May 26 fell by -4  to a 14-month low of 137 rigs, moderately below the 3-1/4 year high of 166 rigs posted in the week ended Sep 9.  Active rigs have more than doubled from the 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.

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