Reduced Storage Injections Drive Natural Gas Prices Higher
The U.S. natural gas market has seen prices edge up to a 15-week high. This increase can be attributed to reduced storage injections, with producers scaling back drilling activities earlier in the year. As a result, the natural gas going into storage for the winter season has been significantly lower. For example, July, August, and September all saw record-low storage injections, according to federal energy data dating back to 1997.
Although storage levels are lower, natural gas inventory remains 6% above average for this time of year. The milder winter of 2023-2024 contributed to lower heating demand, keeping inventories relatively high despite reduced storage injections. This dynamic is keeping traders on edge as they balance supply concerns with current market conditions.
Price Surge Despite Increased Output
Natural gas futures for November delivery on the New York Mercantile Exchange closed at $2.923 per million British thermal units (mmBtu), marking a 0.7% rise and the highest price since mid-June. Despite a small increase in output over the weekend, prices continued to climb. This output rise followed the restarting of drilling activities in the Gulf of Mexico, which had paused due to Hurricane Helene.
Additionally, forecasts for lower demand over the next two weeks haven’t been enough to offset the upward price pressure. Reduced power generation needs, influenced by recent weather patterns, have also contributed to this demand dip. Over 1.9 million homes and businesses remain without power in the U.S. Southeast and Midwest after Helene’s destructive path.
Future Supply and Demand Outlook
Looking ahead, gas output in the Lower 48 U.S. states is expected to average 102.1 billion cubic feet per day (bcfd) in September. Although this is lower than the 103.2 bcfd in August, it reflects the gradual recovery of Gulf of Mexico production. LSEG forecasts also indicate that gas demand, including exports, will rise slightly from 95.9 bcfd this week to 96.6 bcfd next week. However, these projections are still lower than last week’s estimates, showing an uncertain outlook for natural gas markets.
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