February Nymex natural gas (NGG25) saw a rebound on Wednesday, closing up by 1.84%. After hitting a one-month low earlier in the session, prices recovered as traders engaged in short covering, driven by a surge in European gas prices to a 15-month high. However, the market initially faced downward pressure due to forecasts of unseasonably warm temperatures across the southern United States, which are expected to limit heating demand.
The National Oceanic and Atmospheric Administration (NOAA) projected that from February 3-7, above-average temperatures would dominate the southern half of the U.S., reducing the need for natural gas consumption. Despite this bearish factor, expectations for a significant withdrawal from U.S. inventories provided support to prices. Analysts anticipate a 316 bcf draw from the Energy Information Administration’s (EIA) weekly report, substantially larger than the five-year average of 189 bcf for this period.
Earlier in January, natural gas prices had surged to a one-year high as an arctic cold front gripped the U.S., driving heating demand higher and depleting inventories. On the supply side, lower-48 state dry gas production reached 105.5 bcf/day, marking a modest 0.3% year-on-year increase. Meanwhile, demand rose 4.4% year-on-year to 100.8 bcf/day. Liquefied natural gas (LNG) exports continued their upward trajectory, with net flows to U.S. LNG export terminals climbing 46.1% week-on-week to 14.3 bcf/day.
A rise in U.S. electricity output further bolstered natural gas demand. According to the Edison Electric Institute, electricity generation for the lower-48 states in the week ending January 25 surged 21.3% year-on-year to 97,259 GWh. Over the past 52 weeks, total U.S. electricity output increased by 2.25% year-on-year, reflecting strong energy consumption trends.
Despite these bullish elements, last Thursday’s EIA report introduced some bearish sentiment. It revealed a smaller-than-expected inventory draw of 223 bcf for the week ending January 17, compared to expectations of 247 bcf. Nevertheless, this was still a larger draw than the five-year seasonal average of 167 bcf. U.S. natural gas inventories remain robust, standing 1.3% higher year-on-year and 0.7% above the five-year average. European gas storage, however, was reported at 56% full as of January 26, below the five-year seasonal average of 63%.
Baker Hughes reported a modest increase in natural gas drilling activity, with active U.S. rigs rising by one to 99 in the week ending January 24. This remains well above the three-and-a-half-year low of 94 rigs seen in September 2023 but significantly below the five-year peak of 166 rigs recorded in September 2022. The steady reduction in rig activity since then reflects broader industry adjustments to market conditions.
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