Hot US Temps and Below-Normal Storage Build Lifts Nat-Gas Prices

US natural gas (NGU26) prices surged to a one-month high on Thursday, driven by forecasts of hotter weather in the United States that could increase demand for electricity and subsequently, natural gas for air-conditioning. Record-high temperatures are expected across the Southwest through the weekend, with above-average temperatures forecast for nearly the entire country from September 1-10, according to the Commodity Weather Group.

A below-average build in US natural gas storage also contributed to the price rise, as inventories increased by 15 billion cubic feet (bcf) for the week ended August 21, falling short of the five-year average of 33 bcf. This below-average storage build bolstered prices alongside forecasts for hotter weather, which could further spike nat-gas demand from electricity generators.

US electricity output rose 6.1% year-over-year to 100,895 gigawatt hours (GWh) in the week ending August 22, and the 52-week average for the period ending August 22 increased 2.2% year-over-year to 4,365,212 GWh, as reported by the Edison Electric Institute. Additionally, US (lower-48) gas production stood at 112.6 bcf/day, a 3.8% year-over-year increase, while US (lower-48) gas demand was 80.1 bcf/day, marking an 11.5% year-over-year rise.

However, concerns about higher-than-normal temperatures due to an anticipated El Niño weather pattern could act as a medium-term negative factor for nat-gas prices. As of August 21, US nat-gas inventories were down 1.0% year-over-year and 5.5% above their five-year average, indicating ample supplies. By August 25, gas storage levels in Europe were at 64% capacity, compared to the 5-year seasonal average of 81%.