Natural Gas Prices Rise in Expectation of Significant Inventory Reduction

March Nymex natural gas (NGH26) on Wednesday closed up by +0.044 (+1.41%).

March nat-gas prices recovered from a 4-week nearest-futures low on Wednesday and moved higher as short-covering emerged in anticipation of a greater-than-normal withdrawal of US nat-gas storage levels. The consensus is that Thursday’s weekly EIA nat-gas inventories will decline by -257 bcf for the week ended February 6, a much larger draw than the five-year average for this time of year of -146 bcf.

Nat-gas prices initially moved lower on Wednesday amid forecasts of above-average US temperatures, which will reduce nat-gas heating demand. The Commodity Weather Group said Wednesday that forecasts shifted overnight to show even warmer weather across the eastern two-thirds of the US through February 20.

Projections for higher US nat-gas production are also bearish for prices. The EIA on Tuesday raised its forecast for 2026 US dry nat-gas production to 109.97 bcf/day from last month’s estimate of 108.82 bcf/day. US nat-gas production is currently near a record high, with active US nat-gas rigs last Friday posting a 2.5-year high.

Natural gas prices surged to a 3-year high on January 28, driven by the massive storm that disrupted the US with Arctic cold weather. The well below normal temperatures caused freeze-ups in gas wells, disrupted production in Texas and elsewhere, and drove a spike in demand for natural gas for heating. About 50 billion cubic feet of natural gas came offline, or about 15% of total US natural gas production, due to freeze-ups.

US (lower-48) dry gas production on Wednesday was 112.8 bcf/day (+7.1% y/y), according to BNEF. Lower-48 state gas demand on Wednesday was 99.0 bcf/day (-11.7% y/y), according to BNEF. Estimated LNG net flows to US LNG export terminals on Wednesday were 19.6 bcf/day (-0.1% w/w), according to BNEF.

As a bullish factor for gas prices, the Edison Electric Institute reported Wednesday that US (lower-48) electricity output in the week ended February 7 rose +15.42% y/y to 91,4595 GWh (gigawatt hours), and US electricity output in the 52-week period ending February 7 rose +2.59% y/y to 4,315,797 GWh.

Last Thursday’s weekly EIA report was supportive for nat-gas prices, as nat-gas inventories for the week ended January 30 fell by a record -360 bcf, a smaller draw than the market consensus of -378 bcf but well above the 5-year weekly average draw of -190 bcf. As of January 30, nat-gas inventories were up +2.8% y/y and were -1.1% below their 5-year seasonal average, signaling tighter nat-gas supplies. As of February 7, gas storage in Europe was 37% full, compared to the 5-year seasonal average of 54% full for this time of year.

Baker Hughes reported last Friday that the number of active US nat-gas drilling rigs in the week ending February 6 rose by +5 to 130 rigs, matching the 2.5-year high first set on November 28. In the past year, the number of gas rigs has risen from the 4.75-year low of 94 rigs reported in September 2024.

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.

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