Looking to the Futures

Natural gas prices continued Friday's sell off during yesterdays abridged trading session. Early last week prices rallied to their highest levels in a year as an arctic blast caused temperatures to plummet. As weather forecasts shift to warmer temperatures across the United States for next week, demand for natural gas will decrease, driving prices back down. Last week's EIA report showed that inventories declined sharply, though we are still above the 5-year seasonal average. Lower-48 dry gas production has increased year over year and the US has seen an increase in electricity output year-over-year. 

Natural gas prices gapped down to start the week as next week’s warmer than expected weather is suppressing heating demand. Atmospheric G2 reported that US weather forecasts are calling for warmer temperatures in the US from January 27^th to the 31^st, excluding parts of the Northeast and West. 

After last week’s arctic blast forced down temperatures throughout the US, natural gas prices traded to their highest level in over a year; the increased demand caused higher drawdown on inventories than seasonal averages. According to last Thursdays EIA report natural gas inventories dropped -258 bcf, in line with the -260 bcf expectations, but well below the -128 bcf 5-year seasonal average. Nat gas inventories were up +2.1% y/y and were +2.5% above the 5-year seasonal average.

Dry gas production in the Lower-48 increased +8.3% y/y to 103.6 bcf/day according to the BNEF report released on Friday. Lower-48 state gas demand on Friday was 99.4 bcf/day, down -22.6% y/y. LNG net flows to US LNG export terminals was up +2.1% w/w to 15.3 bcf/day.

Higher US electricity output was bullish from natural gas demand from utility providers. According to the report released on Wednesday from the Edison Electric Institute, the total electricity output in the lower-48 increased +10.61% y/y to 91,182 GWh in the week ending January 11^th. US electricity output in the 52-week period ending January 11^th increased +2.46% y/y to 4,188,244 GWh.

The Baker Hughes report released last week shows the number of active US natural gas drilling rigs in the week ending January 17^th dropped -2 to 97 rigs.

Looking at the daily chart for the Henry Hub Natural Gas March 2025 (/NGH25) contract we can see the extreme volatility during last week’s trading. Implied volatility rallied over 100% for the first time in nearly 12 months. The contract tested the 20-Day Simple Moving Average during yesterday’s shortened session, which has been providing a support level for the past two months.  Nat gas prices remain well above the 50-Day and 200-Day SMA levels. 

The 14-Day Relative Strength Index at 54.86% indicates there are slightly more buyers currently, but the contract has not moved into overbought territory.

No Economic Events today.