Nat-Gas Prices Plunge -15% on the Week Due to Warm Forecasts

November Nymex natural gas (NGX26) on Friday closed down -0.156 (-5.58%).

Nov nat-gas prices on Friday plunged to a new 2.5-month nearest-futures low, for the fifth loss in the last six sessions.

Nov nat-gas prices plunged by -15% on the week due to forecasts for above-average US autumn temperatures that could curb nat-gas heating demand.  The Commodity Weather Group said Thursday that forecasts have shifted warmer, with above-average temperatures expected across the Midwest and East through November 5.

A bearish longer-term factor for nat-gas prices is the market's expectation that the Super El Niño will bring warmer-than-normal temperatures to the Northern Hemisphere this fall and winter, reducing heating demand for nat-gas.  The Commodity Weather Group is forecasting that US temperatures in both October and November will be the third-warmest in records going back to 1950.

US (lower-48) dry gas production on Thursday was 113.8 bcf/day (+5.3% y/y), according to BNEF.  Lower-48 state gas demand on Thursday was 72.1 bcf/day (-2.5% y/y), according to BNEF.  Estimated LNG net flows to US LNG export terminals on Thursday were 20.6 bcf/day (+4.7% w/w), according to BNEF.

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 Thursday that US (lower-48) electricity output in the week ended October 17 rose +7.8% y/y to 79,496 GWh (gigawatt-hours).  Also, US electricity output in the 52 weeks ending October 17 rose +3.3% y/y to 4,421,919 GWh.

Thursday's weekly EIA report was slightly bullish for nat-gas prices, showing a +77 bcf increase in US nat-gas inventories for the week ended October 16, below expectations of +78 and below the 5-year weekly average of +87 bcf.  As of October 16, nat-gas inventories were down -4.3% y/y and +1.0% above their 5-year seasonal average, signaling adequate nat-gas supplies. As of October 18, gas storage in Europe was 75% full, compared to the 5-year seasonal average of 89% full for this time of year.

Baker Hughes reported Friday that the number of active US nat-gas drilling rigs in the week ended October 23 fell by -1 to 132 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.