Nat-Gas Prices Settle Higher as European Gas Prices Jump

November Nymex natural gas (NGX26) on Tuesday closed up +0.048 (+1.57%).

Nat-gas prices settled higher on Tuesday, supported by carryover from a rally in European gas prices to a 2-week high.  European nat-gas storage levels are only 73% full, which may push European countries to ramp up US gas purchases ahead of the winter season. 

Gains in nat-gas prices were limited on Tuesday by forecasts of warm US autumn weather, which could reduce heating demand for nat-gas.  The Commodity Weather Group said Tuesday that forecasts shifted warmer, with above-average temperatures expected across the western two-thirds of the US through October 10.

US (lower-48) dry gas production on Tuesday was 112.1 bcf/day (+3.5% y/y), according to BNEF.  Lower-48 state gas demand on Tuesday was 70.6 bcf/day (+9.5% y/y), according to BNEF.  Estimated LNG net flows to US LNG export terminals on Tuesday were 18.4 bcf/day (+1.1% 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 negative factor for gas prices, the Edison Electric Institute reported last Wednesday that US (lower-48) electricity output in the week ended September 26 fell -0.85% y/y to 83,811 GWh (gigawatt hours).  However, US electricity output in the 52 weeks ending September 26 rose +3.27% y/y to 4,411,446 GWh.

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.

Last Thursday's weekly EIA report was slightly bearish for nat-gas prices, showing a +64 bcf increase in US nat-gas inventories for the week ended September 25, above expectations of +63 but below the 5-year weekly average of +80 bcf.  As of September 25, nat-gas inventories were down -4.1% y/y and +2.4% above their 5-year seasonal average, signaling adequate nat-gas supplies. As of October 4, gas storage in Europe was 73% full, compared to the 5-year seasonal average of 88% 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 2 fell by 2 to 133 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.