Natural Gas Prices Drop on Warmer Weather Predictions
Nymex Natural Gas for January experienced a decline, closing at -0.338 (-6.88%) on Tuesday.
This marks the second consecutive day of falling prices, reaching a one-week low. Predictions for warmer weather across the U.S., coupled with decreased demand for natural gas heating, led to significant sell-offs in futures. According to Atmosphere G2, from December 14 to 18, warmer temperatures are expected, particularly in the central U.S., with above-normal conditions likely to continue into late December.
Additionally, a rise in U.S. natural gas production is exerting downward pressure on prices. The EIA has adjusted its forecast for 2025 U.S. production to 107.74 bcf/day, slightly up from last month’s estimate of 107.70 bcf/day. Currently, natural gas production is nearing record levels, with the number of active drilling rigs recently reaching a two-year high.
Just last Friday, natural gas prices surged to a three-year peak, fueled by colder late fall temperatures that significantly boosted heating demand and impacted storage levels.
As reported by BNEF, U.S. dry gas production on Tuesday was at 111.9 bcf/d, reflecting a 7.2% year-over-year increase. Gas demand in the Lower 48 states was 108.8 bcf/d, up 22.5% compared to a year earlier. There were estimated net LNG inflows to U.S. export terminals of 18.1 bcf/d, marking a weekly increase of 2.6%.
A positive aspect for gas prices was highlighted by the Edison Electric Institute last Wednesday, stating that U.S. electricity production for the week ending November 29th was 76,459 GWh, showing a 2.11% rise year-on-year. Over the past year, total U.S. electricity production increased by 2.99% to 4,289,746 GWh.
However, last Thursday’s EIA report was less optimistic, showing a drop in natural gas inventories of -12 bcf for the week ending November 28. This was more favorable than the market’s expectation of -18 bcf and much less than the average decline of -43 bcf over the last five years. As of late November, inventories were down 0.4% year-on-year but still 5.1% above the five-year average, indicating adequate supply levels. Notably, Europe’s gas storage was at 72% capacity, compared to an average of 82% for this time of year.
Baker Hughes reported a slight decrease in the number of active U.S. natural gas drilling rigs, which fell by one to 129 for the week ending December 5. This is just below the recent high of 130 seen on November 28. Over the past year, the rig count has rebounded from a low of 94 in September 2024.
