Nat-Gas Prices Surge With Soaring Weather Forecasts

Market Movements and Factors Influencing Natural Gas Prices

Natural gas prices on the New York Mercantile Exchange (NYMEX) saw a notable increase on Monday, with October futures rising by $0.102 or 3.47%. This upward trend was driven by expectations of higher demand for natural gas as temperatures in the United States are projected to rise, leading to increased usage of air conditioning systems. Forecaster Vaisala noted that weather forecasts have shifted towards warmer conditions in the West and Midwest between September 20-24, with above-normal temperatures anticipated across most of the country from September 25-29.

Supply and Demand Dynamics

Despite the recent upward movement in prices, higher U.S. natural gas production has been a significant bearish factor. The Energy Information Administration (EIA) recently updated its forecast for 2025 U.S. natural gas production, increasing it by 0.2% to 106.63 billion cubic feet per day (bcf/day) from August's estimate of 106.40 bcf/day. Current production levels are near record highs, with active natural gas rigs reaching a two-year high.

According to BNEF, lower-48 state dry gas production on Monday was recorded at 108.7 bcf/day, marking a 7.0% year-over-year increase. Meanwhile, lower-48 state gas demand stood at 71.8 bcf/day, reflecting a 2.0% year-over-year growth. LNG net flows to U.S. export terminals were estimated at 15.0 bcf/day, representing a slight decline of 1.6% compared to the previous week.

Electricity Output and Storage Levels

Supportive factors for natural gas prices include the Edison Electric Institute’s report indicating an increase in U.S. electricity output. For the week ending September 6, electricity output in the lower-48 states rose by 1.03% year-over-year to 83,003 gigawatt hours (GWh). Over the past 52 weeks, electricity output reached 4,264,559 GWh, showing a 2.97% increase year-over-year.

In terms of inventory levels, the EIA’s weekly report released last Thursday was bearish for natural gas prices. Inventory levels for the week ended September 5 increased by 71 bcf, exceeding both the market consensus of 68 bcf and the five-year average of 56 bcf. As of September 5, natural gas inventories were down 1.3% year-over-year but remained 6.0% above the five-year seasonal average, suggesting sufficient supply levels.

European gas storage levels also provide context. As of September 13, gas storage in Europe was 80% full, compared to the five-year seasonal average of 87% for this time of year.

Drilling Activity and Industry Trends

Baker Hughes reported that the number of active U.S. natural gas drilling rigs for the week ending September 12 remained unchanged at 118 rigs, slightly below the two-year high of 124 rigs recorded on August 1. Over the past year, the number of gas rigs has increased from a four-and-a-half-year low of 94 rigs reported in September 2024.

Additional Insights and Resources

For those interested in staying updated on natural gas trends, there are several resources available. These include insights into current natural gas futures charts, analysis on where prices might be heading, and discussions on energy commodities in the second quarter and their potential direction in the third quarter. Additionally, there is ongoing discussion about whether a summer rally could occur in the U.S. natural gas futures market.

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