Nat-Gas Prices Rebound on the Outlook for a Large Storage Withdrawal

January Nymex natural gas (NGF26) on Wednesday closed up by +0.021 (+0.46%).

Jan nat-gas prices recovered from a 2-week low on Wednesday and settled higher.  Short covering emerged in nat-gas futures on Wednesday amid expectations of a significant drawdown in weekly US nat-gas storage.  The consensus is that Thursday's weekly EIA nat-gas inventories will fall by -170 bcf for the week ended Dec 5, a much larger draw than the 5-year average for the week of -89 bcf.

Nat-gas prices initially extended this week's slide on Wednesday due to forecasts of warmer US weather, which will reduce nat-gas heating demand, prompting heavy liquidation in nat-gas futures.   Forecaster Atmospheric G2 said Wednesday that temperatures will trend warmer across the eastern and southern US for December 20-24.

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 Wednesday was 111.9 bcf/day (+7.8% y/y), according to BNEF.  Lower-48 state gas demand on Wednesday was 106.2 bcf/day (+12.0% y/y), according to BNEF.  Estimated LNG net flows to US LNG export terminals on Wednesday were 18.3 bcf/day (+1.9% w/w), according to BNEF.

As a supportive factor for gas prices, the Edison Electric Institute reported Wednesday that US (lower-48) electricity output in the week ended Dec 6 rose +2.3% y/y to 85,330 GWh (gigawatt hours), and US electricity output in the 52-week period ending Dec 6 rose +2.84% y/y to 4,291,665 GWh.

Last Thursday's weekly EIA report was bearish for nat-gas prices, as nat-gas inventories for the week ended Nov 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 Nov 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 Dec 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 Dec 5 fell by -1 to 129, just below the 2.25-year high of 130 rigs set on Nov 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.