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Rich Asplund

Nat-Gas Prices Surge on U.S. Weather and European Carry-over Support

October Nymex natural gas (NGV23) on Tuesday closed +0.120 (+4.40%), adding to Monday's rally of +3.18%.

Nat-gas prices on Tuesday rallied sharply after the EIA, in its monthly Drilling Productivity Report released on Monday, predicted that U.S. gas production from U.S. shale basins will edge lower in October versus September.

Weather was also a bullish factor due to forecasts for above-normal temps in the Great Lakes and Texas.  The Commodity Weather Group sees mostly normal temps in the East Coast and West, but above-normal temps in the Great Lakes region and Texas during Sep 23-27, which would boost air conditioning demand.

U.S. nat-gas prices on Tuesday also had carry-over support from a sharp +6.7% rally in European benchmark nat-gas prices, which was sparked by a notice that Norway's massive Troll field will halt production Wednesday.  The Troll field is having "process problems" ramping back up after prolonged maintenance.

Nat-gas prices also have support from labor disruptions in Australia.  LNG workers at key Chevron sites in Australia recently began partial strikes after talks with management failed to reach an agreement.  Inspired Plc predicts Asian LNG buyers "would likely bid up LNG imports" to replace Australian volumes if Australian strikes reduce Australian LNG production.  Australia is the world's third-largest liquified natural gas (LNG) exporter, accounting for about 10% of global supplies last year.

Lower-48 state dry gas production Tuesday was 101.1 bcf/day (+0.2% y/y), according to BNEF.  Lower-48 state gas demand Tuesday was 66.6 bcf/day, -2.6% y/y, according to BNEF.  LNG net flows to U.S. LNG export terminals Monday were 13.1 bcf/day or +11.5% w/w.

Nat-gas prices have been undercut by high inventories caused by carry-over from the mild 2022/23 winter and weak heating demand.  Gas storage across Europe was 94% full as of September 10, well above the 5-year seasonal average of 83% full for this time of year.  U.S. nat-gas inventories as of September 8 were +6.8% above their 5-year seasonal average.

An increase in U.S. electricity output is bullish for nat-gas demand from utility providers.  The Edison Electric Institute reported last Wednesday that total U.S. electricity output in the week ended September 9 rose +8.4% y/y to 90,200 GWh (gigawatt hours).  However, cumulative U.S. electricity output in the 52-week period ending September 9 fell -1.1% y/y to 4,082,083 GWh.

Last Thursday's weekly EIA report of +57 bcf for the week ended September 8 was bearish for nat-gas prices since it was above expectations of +50 bcf, although below the 5-year average for this time of year at +76 bcf.  As of September 8, nat-gas inventories were up +15.7% y/y and were +6.8% above their 5-year seasonal average, signaling ample nat-gas supplies.

Baker Hughes reported last Friday that the number of active U.S. nat-gas drilling rigs in the week ended September 15 rose by +8 to 121 rigs, rebounding from the prior week's 19-month low of 113 rigs.  Active rigs rose to a 4-year high of 166 rigs in September 2022.  Active rigs have roughly doubled from the 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.
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