Quick Summary
- December Nymex natural gas futures extended their rally, reaching a 3.5-month high on projections of colder early winter weather.
- While forecasts suggest potential for colder weather in some regions, near-term outlooks indicate moderate temperatures on the East and West Coasts.
- U.S. dry gas production and demand both saw year-over-year increases, with LNG net flows to export terminals also rising.
- Supported by rising electricity output, natural gas prices face bearish pressure from increasing production and a high number of active drilling rigs.
- Natural gas inventories remain adequate, both domestically and in Europe, suggesting sufficient supply.
Natural Gas Futures Extend Gains
December Nymex natural gas futures concluded Monday’s trading session with a gain of +0.142, marking a 3.44% increase. This rise follows a significant rally of +4.25% observed last Friday, indicating continued upward momentum in the market.
Market Drivers and Weather Outlook
The uptick in December natural gas prices on Monday propelled them to a 3.5-month high. This surge is primarily attributed to the potential for colder-than-normal weather conditions anticipated in the early winter months. However, the outlook for the immediate future presents a mixed picture. According to NOAA, forecasts have shifted towards warmer conditions for the Southwest region between November 7th and 11th. Simultaneously, moderate temperatures are expected to prevail on both the East and West Coasts from November 10th to the 16th.
U.S. Production and Demand Dynamics
In the contiguous United States (lower-48 states), dry gas production on Monday stood at 110.0 billion cubic feet per day (bcf/day), representing a year-over-year increase of 6.6%. Lower-48 state gas demand was recorded at 77.2 bcf/day, which is 5.1% higher than the previous year. Estimated net flows of liquefied natural gas (LNG) to U.S. export terminals showed a notable increase of 13.5% week-over-week, reaching 16.8 bcf/day.
Electricity Output and Supportive Factors
💡 The Edison Electric Institute reported that U.S. (lower-48) electricity output for the week ending October 25th rose by 1.9% year-over-year, reaching 72,772 gigawatt hours (GWh). Over the preceding 52-week period ending October 25th, U.S. electricity output climbed by 2.9% year-over-year to a substantial 4,282,176 GWh. This increase in electricity demand can be seen as a supportive factor for natural gas prices, as natural gas is a key fuel source for power generation.
Bearish Pressures: Production and Rigs
Despite the recent upward trend, several factors continue to exert bearish pressure on natural gas prices. Higher U.S. natural gas production is a significant concern. In its October 7th update, the Energy Information Administration (EIA) revised its forecast for 2025 U.S. natural gas production upward by 0.5% to 107.14 bcf/day, an increase from the September estimate of 106.60 bcf/day. Current U.S. natural gas production is hovering near record highs, further compounded by a recent two-year high in active U.S. natural gas rigs.
Inventory Levels and Supply Adequacy
📊 Last Thursday’s weekly EIA report indicated neutral market sentiment for natural gas prices. Natural gas inventories increased by 74 bcf for the week ended October 24th, aligning precisely with market consensus. However, this figure was above the 5-year weekly average increase of 67 bcf. As of October 24th, natural gas inventories were up 0.5% year-over-year and stood 4.6% above their 5-year seasonal average, suggesting adequate supply levels. In Europe, gas storage levels were reported at 83% full as of October 29th, which is below the 5-year seasonal average of 92% for this period.
Drilling Activity Reaches Multi-Year High
📍 Baker Hughes reported on Friday that the number of active U.S. natural gas drilling rigs increased by 4 in the week ending October 31st, reaching a 2.25-year high of 125 rigs. Over the past year, the number of active gas rigs has grown significantly from a 4.5-year low of 94 rigs reported in September 2024. This sustained increase in drilling activity points towards potentially higher future production volumes.
Expert Summary
Natural gas futures have seen a notable rally, driven by expectations of colder winter weather. However, mixed short-term forecasts and robust production levels present counterbalancing forces. While inventory levels suggest ample supply, market participants will continue to monitor weather patterns and drilling activity closely.