Nat-Gas Prices Slide on a Smaller-Than-Expected Draw in EIA Weekly Inventories

March Nymex natural gas (NGH24) on Thursday closed -0.028 (-1.74%).

Nat-gas prices on Thursday dropped to a new 3-1/2 year nearest-futures low, extending the slide to eight consecutive sessions. Nat-gas prices moved lower Thursday after weekly EIA nat-gas inventories fell -49 bcf, a smaller draw than expectations of -65 bcf and much smaller than the 5-year average of -149 bcf. Nat-gas prices saw some underlying support after NatGasWeather said a cold front would move across the Northeast and Midwest from Feb 22-29, which could boost heating demand for nat-gas.

Nat-gas prices are under pressure from the announcement by the Freeport LNG nat-gas export terminal in Texas on Jan 26 that it was forced to shut down one of its three production units for a month for repairs after extreme cold in Texas damaged equipment. Closing one of the units will limit U.S. nat-gas exports and increase U.S. nat-gas inventories.

Lower-48 state dry gas production Thursday was 103.9 bcf/day (+4.6% y/y), according to BNEF. Lower-48 state gas demand Thursday was 91.6 bcf/day (+15.1% y/y), according to BNEF. LNG net flows to U.S. LNG export terminals Thursday were 13.4 bcf/day (-1.7% w/w), according to BNEF.

The U.S. Climate Prediction Center said there is a greater than 55% chance the current El Nino weather pattern will remain strong in the Northern Hemisphere through March, keeping temperatures above average and weighing on nat-gas prices. AccuWeather said El Nino will limit snowfall across Canada this season in addition to causing above-normal temperatures across North America.

An increase in U.S. electricity output is positive for nat-gas demand from utility providers. The Edison Electric Institute reported Wednesday that total U.S. electricity output in the week ended February 10 rose +0.4% y/y to 75,587 GWh (gigawatt hours), although cumulative U.S. electricity output in the 52-week period ending February 10 fell -0.3% y/y to 4,099,349 GWh.

Thursday's weekly EIA report was bearish for nat-gas prices as nat-gas inventories for the week ended February 9 fell -49 bcf, a smaller draw than expectations of -65 bcf and a much smaller draw than the five-year average for this time of year at -149 bcf. As of February 9, nat-gas inventories were up +11.9% y/y and were +15.9% above their 5-year seasonal average, signaling ample nat-gas supplies. In Europe, gas storage was 67% full as of February 12, above the 5-year seasonal average of 51% full for this time of year.

Baker Hughes reported last Friday that the number of active U.S. nat-gas drilling rigs in the week ending February 9 rose +4 rigs to a 5-month high of 121 rigs, moderately above the 2-year low of 113 rigs posted September 8. Active rigs have fallen back 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).

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.