In Brief
- December natural gas futures (NGZ25) experienced a rally, closing up 2.49% and reaching an 8-month high.
- Colder weather forecasts are anticipated to drive increased heating demand for natural gas.
- However, rising U.S. natural gas production, with forecasts indicating higher output for 2025, presents a bearish factor.
- Active U.S. natural gas rigs have reached a new 2.25-year high.
- European gas storage levels are currently below their 5-year seasonal average.
Natural Gas Prices Surge on Colder Weather Outlook
December Nymex natural gas futures (NGZ25) saw a positive close on Thursday, rising by 0.113 to 2.49%. This marks a continuation of a month-long rally, pushing prices to a new nearest-futures high for the past eight months.
The upward momentum is largely driven by colder temperature forecasts for the latter part of the month in the United States. Forecaster Atmospheric G2 indicated a shift towards cooler weather patterns in the western U.S. between November 18-22, with further cooling expected from November 23-27. This anticipated colder spell is expected to increase heating demand and subsequently boost natural gas prices.
Production Levels and Their Market Impact
Conversely, increasing U.S. natural gas production is acting as a bearish indicator for prices. The U.S. Energy Information Administration (EIA) recently revised its 2025 U.S. natural gas production forecast upward by 1.0%, projecting an average of 107.67 billion cubic feet per day (bcf/day), an increase from the September estimate of 106.60 bcf/day.
Current U.S. natural gas production is hovering near record highs. Data from BNEF shows that Lower 48 U.S. dry gas production reached 109.7 bcf/day on Thursday, representing a year-over-year increase of 7.3%. In contrast, Lower 48 state gas demand was recorded at 82.7 bcf/day, a slight decrease of 1.2% year-over-year.
⚡ Estimated net liquefied natural gas (LNG) flows to U.S. LNG export terminals on Thursday were 17.8 bcf/day, an increase of 8.9% week-over-week, according to BNEF.
Electricity Output and Inventory Status
A supportive factor for natural gas prices comes from the electricity sector. The Edison Electric Institute reported that U.S. (lower-48) electricity output in the week ending November 8 increased by 0.12% year-over-year, reaching 73,383 gigawatt hours (GWh). Over the past 52 weeks ending November 8, U.S. electricity output saw a growth of 2.84% year-over-year, totaling 4,282,302 GWh.
The consensus forecast anticipates that Friday’s EIA natural gas inventories report will show an increase of approximately 34 bcf for the week ending November 7. This figure is close to the five-year average of +35 bcf. It’s important to note that the report’s release was delayed by one day due to the Veterans’ Day holiday on Tuesday.
Last Thursday’s EIA report indicated that natural gas inventories for the week ending October 31 rose by 33 bcf, aligning with market expectations but falling short of the 5-year weekly average of 42 bcf. As of October 31, natural gas inventories were up 0.4% year-over-year and stood 4.3% above their 5-year seasonal average, suggesting adequate supply levels.
📊 In Europe, as of November 10, gas storage levels were at 82% capacity, which is below the 5-year seasonal average of 91% for this time of year.
Drilling Rig Activity Reaches Multi-Year High
Further underscoring the increased production potential, Baker Hughes reported last Friday that the number of active U.S. natural gas drilling rigs increased by three in the week ending November 7, reaching a 2.25-year high of 128 rigs. This follows a trend of increasing rig counts after hitting a 4.5-year low of 94 rigs in September 2024.
Expert Summary
December natural gas futures are trading higher, bolstered by forecasts of colder weather and increased heating demand. Despite this, rising U.S. production levels and a significant number of active drilling rigs present potential headwinds for sustained price increases. Current inventory levels in the U.S. suggest adequate supply, while European storage remains below its seasonal average.
