Key Takeaways
- December Nymex natural gas futures closed lower due to forecasts of mild US weather reducing heating demand.
- Increased US natural gas production, highlighted by rising active rig counts, is also contributing to bearish price pressure.
- While US electricity output shows a slight year-over-year increase, natural gas inventories remain adequate.
- European gas storage levels are below the five-year seasonal average, potentially offering some support.
- The active US natural gas drilling rig count has reached a 2.25-year high.
Natural Gas Futures Experience Downward Trend
December Nymex natural gas futures experienced a decline on Friday, closing down by -0.042 (-0.96%). This downturn was largely influenced by projections of milder weather across the United States, which is expected to curb the demand for natural gas used in heating.
Mild Weather and Production Impact Prices
Forecasting services indicated that warmer-than-normal temperatures are anticipated in the western two-thirds of the U.S. from November 12-16, with above-normal temperatures expected to persist through November 17-21. This outlook for reduced heating needs added downward pressure on natural gas prices.
Adding to the bearish sentiment, an increase in U.S. natural gas production was reported. Baker Hughes data showed a rise in active U.S. natural gas rigs, pushing the count to a 2.25-year high, which generally weighs on commodity prices.
Production Forecasts Signal Ample Supply
Higher U.S. natural gas production figures are considered a bearish indicator for market prices. The Energy Information Administration (EIA) had previously raised its forecast for 2025 U.S. natural gas production by 0.5% to 107.14 billion cubic feet per day (bcf/day), an increase from September’s estimate of 106.60 bcf/day.
Current U.S. natural gas production is hovering near record levels, with the number of active drilling rigs recently reaching a two-year high. According to BNEF, dry gas production in the lower 48 states stood at 110.0 bcf/day on Friday, an increase of 8.1% year-over-year. Conversely, lower-48 state gas demand was reported at 77.0 bcf/day, down 2.7% year-over-year. Estimated LNG net flows to U.S. export terminals averaged 17.3 bcf/day for the week, a slight decrease of 0.8% week-over-week.
Electricity Output and Inventory Levels
💡 On a supportive note for gas prices, the Edison Electric Institute reported that U.S. (lower-48) electricity output in the week ending November 1 saw a marginal year-over-year increase of 0.05% to 73,730 GWh. Over the 52-week period ending November 1, U.S. electricity output rose by 2.89% year-over-year, reaching 4,282,216 GWh.
📊 The latest weekly EIA report for the week ended October 31 indicated that natural gas inventories increased by 33 bcf, aligning with market consensus. However, this figure remained below the five-year weekly average of +42 bcf. As of October 31, total natural gas inventories were up 0.4% year-over-year and stood 4.3% above the five-year seasonal average, suggesting that supplies are currently adequate.
📍 In Europe, as of November 5, gas storage levels were at 83% capacity, which is notably lower than the five-year seasonal average of 92% for this time of year.
Drilling Rig Activity Reaches Multi-Year High
📈 Baker Hughes reported that for the week ending November 7, the number of active U.S. natural gas drilling rigs increased by three, reaching a total of 128 rigs. This marks the highest count in 2.25 years. Over the past year, the number of active gas rigs has seen a significant rise from the 4.5-year low of 94 rigs reported in September 2024.
Expert Summary
The natural gas market is currently influenced by conflicting factors, including mild weather forecasts that suppress demand and rising production levels that add to supply. While adequate domestic inventories and increased drilling activity suggest bearish pressure, lower-than-average European storage might offer some underlying support.
