Nymex Natural Gas Prices Plunge to 2-Week Low as Weekly EIA Report and Warmer Outlook Dampen Demand

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On Thursday, February Nymex natural gas (NGG24) faced a significant decline, closing at -0.173 (-6.03%). The sharp drop followed the release of the weekly EIA natural gas inventory report, which revealed a draw of -154 bcf, slightly less than the anticipated -165 bcf.

One of the contributing factors to the decline was the outlook for warmer-than-normal temperatures across the United States, diminishing the demand for natural gas for heating purposes. Forecasts from Atmospheric G2 indicated expectations for above-normal temperatures from January 28 to February 1.

While current Arctic temperatures in the U.S. had initially led to increased heating demand and a reduction in natural gas output, the recent warming trend reversed the dynamics. Lower-48 state dry gas production was reported at 97.4 bcf/day (-4.0% y/y), while gas demand stood at 111.7 bcf/day (+32% y/y). LNG net flows to U.S. LNG export terminals also saw a decline to 13.4 bcf/day (-9.1% w/w).

The U.S. Climate Prediction Center added to the bearish sentiment by indicating a greater than 55% chance of the prevailing El Nino weather pattern persisting strongly in the Northern Hemisphere through March. This scenario is expected to keep temperatures above average, further weighing on natural gas prices. AccuWeather predicted that El Nino would limit snowfall in Canada and lead to above-normal temperatures across North America.

Despite the drop in natural gas prices, an increase in U.S. electricity output was noted as a positive factor. The Edison Electric Institute reported a +6.4% y/y rise in total U.S. electricity output in the week ending January 13, reaching 82,435 GWh. However, cumulative electricity output over the 52 weeks ending January 13 fell -1.0% y/y to 4,087,720 GWh.

The weekly EIA report, with its smaller-than-expected draw in natural gas inventories, was considered bearish for prices. As of January 12, inventories were up +12.8% y/y and +11.2% above their 5-year seasonal average, indicating ample natural gas supplies. In Europe, gas storage reached 79% full as of January 15, surpassing the 5-year seasonal average of 67% for this time of year.

The recent data from Baker Hughes revealed that the number of active U.S. natural gas drilling rigs fell by -1 to 117 rigs in the week ending January 12. This was just above the 2-year low observed on September 8. Active rigs have been on a declining trend since reaching a 4.5-year high of 166 rigs in September 2022, rebounding from the pandemic-era record low of 68 rigs in July 2020.