Key Takeaways
- December Nymex natural gas futures closed higher, reaching a 5-month high due to an anticipated increase in heating demand.
- Colder forecasts for late November into early December are expected to boost natural gas consumption.
- While production is down year-over-year, demand and LNG net flows remain stable, with a slight increase in electricity output contributing positively.
- Recent EIA data showed a larger-than-expected build in natural gas inventories, indicating ample supply.
- The number of active natural gas drilling rigs has seen a modest decline but remains above recent lows.
Natural Gas Futures Reach 5-Month High Amidst Shifting Weather Outlook
December Nymex natural gas futures experienced an uptick on Tuesday, closing higher by 0.84%. This gain continues the upward momentum seen on Monday, pushing nearest-futures prices to a new 5-month high. The optimistic price action is largely attributed to the forecast for significantly colder temperatures expected towards the end of the month, which is anticipated to drive increased heating demand for natural gas.
Forecaster Maxar Technologies indicated a shift in weather patterns, predicting that much of the United States will experience colder conditions from November 28th to December 2nd. This anticipated temperature drop is a key driver for the bullish sentiment in the natural gas market.
Market Dynamics: Production, Demand, and LNG Flows
Data from BNEF reveals that Lower-48 state dry gas production on Tuesday stood at 101.1 billion cubic feet per day, marking a 4.1% decrease year-over-year. Conversely, Lower-48 state gas demand was recorded at 77.6 billion cubic feet per day, indicating a 1.0% increase year-over-year. In terms of export activity, LNG net flows to US LNG export terminals on Tuesday were 13.4 billion cubic feet per day, showing a modest week-over-week decrease of 1.1%.
💡 An increase in US electricity output provides a positive undercurrent for natural gas demand, particularly from utility providers. The Edison Electric Institute reported that total US (Lower-48) electricity output for the week ending November 9th rose by 3.19% year-over-year, reaching 73,297 gigawatt hours. Over the preceding 52-week period ending November 9th, US electricity output increased by 1.6% year-over-year, totaling 4,164,003 gigawatt hours.
Inventory Levels and Global Storage
The most recent weekly report from the Energy Information Administration (EIA), released last Thursday, presented a bearish outlook for natural gas prices. Natural gas inventories for the week ending November 8th increased by 42 billion cubic feet, surpassing expectations of a 39 billion cubic feet rise. This build was also significantly higher than the 5-year average build of 29 billion cubic feet for this period.
📊 As of November 8th, natural gas inventories were 3.7% higher year-over-year and stood 6.1% above their 5-year seasonal average, signaling robust and ample natural gas supplies. On the international front, European gas storage levels were reported at 93% full as of November 10th, slightly exceeding the 5-year seasonal average of 92% full for this point in the year.
Drilling Rig Count Trends
Baker Hughes reported on Friday that the number of active US natural gas drilling rigs decreased by one rig in the week ending November 15th, bringing the total to 101 active rigs. This number remains modestly above the 3-1/2 year low of 94 rigs recorded on September 6th.
⚡ The active rig count has been on a downward trend since reaching a 5-1/4 year high of 166 rigs in September 2022. This follows a period of significant lows, including the pandemic-era record low of 68 rigs posted in July 2020, based on data available since 1987.
Final Thoughts
The natural gas market is currently navigating a complex interplay of seasonal demand forecasts, production levels, and inventory data. While colder weather prospects offer support, ample supply levels and broader market trends require continued monitoring.