US natural gas futures ended higher, marking their biggest weekly gain in over two months, driven by expectations of unusually hot weather across the central and southern United States. Forecasters, including the private firm Commodity Weather Group, have shifted their outlook to show much hotter temperatures in the coming weeks. This hotter weather is anticipated to boost demand for electricity as consumers increase their use of air conditioning, consequently raising the need for natural gas to fuel power plants.
This surge in demand comes amidst money managers holding their most bearish positions on natural gas since 2020. The significant shift in weather forecasts triggered a wave of short-covering, where investors who had bet on falling prices bought back contracts to limit losses, further pushing prices up.
Specifically, intense and long-lasting heat in Texas is contributing to the rise in natural gas prices, with Houston expecting average temperatures of 100F (38C) from August 20-23, which is 5F above the seasonal norm. This puts pressure on gas-fired power generators and the electricity grid. The September Nymex natural gas (NGU26) closed up +0.038 (+1.37%) on Wednesday, rallying to a 4-week high. On Monday, it closed up +0.132 (+4.96%) on the same outlook for hotter weather.
Inventories also played a role, with expectations for a smaller-than-normal build in US natural gas storage. The consensus for the week ended August 14 was a +14 bcf increase, below the five-year average build of +29 bcf. However, a bearish factor remains the US Energy Information Administration's (EIA) projection that storage levels will reach 3,985 bcf by the end of October, 5% above the five-year average, and a medium-term bearish factor is the speculation that an El Niño weather system will bring warmer-than-normal temperatures, reducing heating demand later in the year. US lower-48 dry gas production was 112.0 bcf/day (+2.7% y/y) and demand was 83.6 bcf/day (+4.3% y/y) on Wednesday, according to BNEF. Estimated LNG net flows to US LNG export terminals were 17.6 bcf/day (-2.1% w/w).
The S&P GSCI Natural Gas Index closed at 134.28 points on August 24, with a 5-day change of +5.20% and a year-to-date change of -22.11%. In the week ended August 15, US lower-48 electricity output rose +2.36% year-over-year to 101,498 GWh, with a +2.24% year-over-year increase over the past 52 weeks to 4,359,446 GWh, according to the Edison Electric Institute.
