Nat-Gas Prices Climb as US Weather Forecasts Turn Colder

December Nymex natural gas prices closed higher, reaching a five-month nearest-futures high, primarily driven by forecasts for sharply colder temperatures later in the month expected to boost heating demand. This bullish sentiment is somewhat counteracted by ample supply signals, including a larger-than-expected weekly inventory build of 42 bcf, placing U.S. natural gas inventories 6.1% above their five-year seasonal average, and a slight decline in active drilling rigs, indicating a complex market dynamic with conflicting demand and supply pressures.

Analysis

December Nymex natural gas futures (NGZ24) advanced by 0.84%, reaching a five-month nearest-futures high, primarily driven by Maxar Technologies' forecast for sharply colder temperatures across much of the US from November 28 to December 2, which is expected to significantly boost heating demand. This short-term bullish catalyst is supported by a 3.19% year-over-year increase in US electricity output for the week ended November 9, indicating robust utility demand.

However, underlying supply metrics present a more complex picture. US Lower-48 dry gas production decreased 4.1% year-over-year to 101.1 bcf/day, while Lower-48 gas demand saw a modest 1.0% year-over-year increase to 77.6 bcf/day. The weekly EIA report for November 8 indicated a larger-than-expected inventory build of 42 bcf, surpassing forecasts of 39 bcf and the five-year average of 29 bcf.

Consequently, US natural gas inventories as of November 8 were 3.7% higher year-over-year and 6.1% above their five-year seasonal average, signaling ample current supplies. European gas storage also remains robust at 93% full. Furthermore, the active US natural gas drilling rig count fell by one to 101 rigs in the week ending November 15, continuing a trend of decline from the September 2022 peak, which could impact future supply.

Key Decisions for Investors

• Investors should monitor the duration and intensity of the forecasted cold weather, as short-term demand spikes are currently driving price action despite ample supply.
• Given the significant inventory overhang (6.1% above the 5-year average) and larger-than-expected weekly builds, investors should closely track future EIA inventory reports for signs of sustained draws that could rebalance the market.
• Consider the implications of the declining active drilling rig count, which, while not immediately impacting current supply, could signal tighter market conditions in the medium to long term if demand growth persists.