March Nymex natural gas (NGH24) on Wednesday closed -0.042 (-2.09%).

Nat-gas prices on Wednesday dropped to a 9-3/4 month nearest-futures low as an unusually mild winter has sapped heating demand for nat-gas and kept U.S. inventories elevated.  Forecaster Maxar Technologies said Wednesday that weather forecasts have turned warmer from the Rockies to the Midwest over the next two weeks.

Nat-gas prices are also under pressure after the Freeport LNG nat-gas export terminal in Texas said on January 26 that it is shutting one of its three production units for a month for repairs after extreme cold in Texas damaged equipment.  The closure of one of the units will limit U.S. nat-gas exports and increase U.S. nat-gas inventories.

Lower-48 state dry gas production Wednesday was 104.2 bcf/day (+4.2% y/y), according to BNEF.  Lower-48 state gas demand Wednesday was 93.1 bcf/day (+8.9% y/y), according to BNEF.  LNG net flows to U.S. LNG export terminals Wednesday were 13.5 bcf/day (-4.2% w/w), according to BNEF.

The U.S. Climate Prediction Center said there is a greater than 55% chance the current El Nino weather pattern will remain strong in the Northern Hemisphere through March, keeping temperatures above average and weighing on nat-gas prices.  AccuWeather said El Nino will limit snowfall across Canada this season in addition to causing above-normal temperatures across North America.

A decline in U.S. electricity output is negative for nat-gas demand from utility providers.  The Edison Electric Institute reported Wednesday that total U.S. electricity output in the week ended February 3 fell -8.1% y/y to 77,013 GWh (gigawatt hours), and cumulative U.S. electricity output in the 52-week period ending February 3 fell -0.4% y/y to 4,099,080 GWh.

The consensus is that Thursday's weekly EIA nat-gas inventories will fall -75 bcf, a much smaller draw than the five-year average for this time of year at -193 bcf.

Last Thursday's weekly EIA report was bearish for nat-gas prices as nat-gas inventories for the week ended January 26 fell -197 bcf, a smaller draw than expectations of -203 bcf but above the 5-year average draw of -185 bcf.  As of January 26, nat-gas inventories were up +2.9% y/y and were +5.1% above their 5-year seasonal average, signaling ample nat-gas supplies.  In Europe, gas storage was 69% full as of February 4, above the 5-year seasonal average of 55% full for this time of year.

Baker Hughes reported last Friday that the number of active U.S. nat-gas drilling rigs in the week ending February 2 fell -2 rigs to 117 rigs, just above the 2-year low of 113 rigs posted September 8.  Active rigs have fallen back since climbing to a 4-1/2 year high of 166 rigs in Sep 2022 from the pandemic-era record low of 68 rigs posted in July 2020 (data since 1987).



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