Nat-Gas Prices Erase Early Gains on Forecasts for Warmer US Spring Temps

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May Nymex natural gas (NGK24) on Wednesday closed down by -0.021 (-1.13%).

May nat gas prices on Wednesday fell back from a 3-week high and closed moderately lower.  Long liquidation in nat-gas emerged Wednesday after updated weather forecasts called for warmer US temperatures, which will reduce heating demand for nat-gas.  Forecaster Atmospheric G2 said Wednesday that spring warmth is expected for the eastern half of the US from April 8-12, while the west should see above-normal temperatures.  

Nat-gas prices have collapsed this year, with nearest-futures (NGJ24) posting a 3-3/4 year low last Tuesday as an unusually mild winter curbed heating consumption for nat-gas and pushed inventories well above average.  As of March 22, US nat-gas inventories were +41.1% above their 5-year seasonal average, signaling abundant nat-gas supplies.  

Nat-gas prices are also under pressure after the Freeport LNG nat-gas export terminal in Texas on March 1 shut down one of its three production units due to damage from extreme cold in Texas.  The unit recently reopened on a partial basis.  However, Freeport said that once the production unit is fully reopened, the other two units will be taken down for maintenance, and all three units will not return online until May.  The lack of full capacity of the Freeport export terminal limits US nat-gas exports and boosts US nat-gas inventories.  

Lower-48 state dry gas production Wednesday was 98.5 bcf/day (-1.0% y/y), according to BNEF.  Lower-48 state gas demand Wednesday was 80.9 bcf/day (+9.4% y/y), according to BNEF.  LNG net flows to US LNG export terminals Wednesday were 12.7 bcf/day (+2.6% w/w), according to BNEF.

An increase in US electricity output is positive for nat-gas demand from utility providers.  The Edison Electric Institute reported Wednesday that total US electricity output in the week ended March 30 fell +0.13% y/y to 70,997 GWh (gigawatt hours), although cumulative US electricity output in the 52-week period ending March 30 fell -0.37% y/y to 4,094,185 GWh.

The consensus is that Thursday's weekly EIA nat-gas inventories will fall by -42 bcf, a bigger decline than the five-year average for this time of year of-1 bcf.

Last Thursday's weekly EIA report was bullish for nat-gas prices since nat-gas inventories for the week ended March 22 fell by -36 bcf, a larger draw than expectations of -28 bcf and above the 5-year average decline of -27 bcf for this time of year.  As of March 22, nat-gas inventories were up +23.9% y/y and were +41.1% above their 5-year seasonal average, signaling ample nat-gas supplies.  In Europe, gas storage was 59% full as of April 1, above the 5-year seasonal average of 42% full for this time of year.

Baker Hughes reported last Thursday that the number of active US nat-gas drilling rigs in the week ending March 29 was unchanged at a 2-year low of 112 rigs.  Active rigs have fallen since climbing to a 4-1/2 year high of 166 rigs in Sep 2022 from the pandemic-era record low of 68 rigs posted in July 2020 (data since 1987).

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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.