In a notable development, January Nymex natural gas (NGF24) closed up +0.125 (+5.11%) on Thursday, driven by a significant draw in weekly U.S. natural gas stockpiles that surpassed market expectations. The Energy Information Administration (EIA) reported a substantial decrease of -87 billion cubic feet (bcf), exceeding the anticipated -82 bcf draw.
Despite this positive momentum, natural gas prices faced headwinds from weather forecasts predicting above-normal temperatures across the United States from December 26-30. This outlook reduced heating demand for natural gas, with the Commodity Weather Group suggesting the likelihood of record-high temperatures in the Midwest during the Christmas holidays.
Adding to the market dynamics, the U.S. Climate Prediction Center expressed a greater than 55% chance that the current El Niño weather pattern would persist in the Northern Hemisphere through March. This scenario is expected to keep temperatures above average, potentially placing downward pressure on natural gas prices. AccuWeather further noted that El Niño is likely to limit snowfall across Canada this season and contribute to above-normal temperatures across North America.
According to data from BloombergNEF (BNEF), Lower-48 state dry gas production on Thursday stood at 105.0 bcf/day, marking a 5.4% increase year-over-year. In contrast, Lower-48 state gas demand registered 93.3 bcf/day, reflecting a 16% year-over-year decrease. BNEF also reported that liquefied natural gas (LNG) net flows to U.S. LNG export terminals were 14.6 bcf/day, indicating a 3.6% week-over-week increase.
The decline in U.S. electricity output emerged as a negative factor for natural gas demand from utility providers. According to the Edison Electric Institute, total U.S. electricity output for the week ended December 16 contracted by -0.4% year-over-year to 78,3197 gigawatt hours (GWh). Cumulative U.S. electricity output in the 52-week period ending December 16 also decreased by -0.7% year-over-year to 4,092,819 GWh.
The weekly EIA report released on Thursday provided a bullish stance for natural gas prices. While the -87 bcf draw exceeded expectations, it fell slightly below the 5-year average draw of -107 bcf. As of December 15, natural gas inventories were up +7.6% year-over-year and +8.5% above their 5-year seasonal average, indicating ample supplies. Meanwhile, in Europe, gas storage reached 89% full as of December 17, surpassing the 5-year seasonal average of 77% for this time of year.
Baker Hughes reported on Thursday that the number of active U.S. natural gas drilling rigs in the week ended December 22 increased by +1 to 120 rigs. This modest uptick comes just above the 19-month low of 113 rigs posted on September 8. Notably, active rigs have experienced fluctuations this year, declining from a 4-year high of 166 rigs in September 2022, following the pandemic-era record low of 68 rigs recorded in July 2020 (data since 1987).