Natural Gas Prices Plummet to 2-Month Low Amid Warmer Forecasts

May Nymex natural gas (NGK25) closed down by -0.229 (-7.06%) on Monday, dropping to a 2-3/4 month low as forecasts of warmer temperatures across the U.S. reduced heating demand and offered opportunities for inventory rebuilding. According to forecaster Atmospheric G2, temperatures in the eastern half of the U.S. are expected to be significantly above normal from April 26-30. The decline accelerated after prices fell below the 200-day moving average, which spurred technical selling.

In March, natural gas prices had surged to a two-year high, driven by expectations of tight U.S. storage levels ahead of the approaching summer cooling season. BloombergNEF anticipates that U.S. gas storage will be about 10% lower than the five-year average this summer.

Production and Demand Overview

As of Monday, lower-48 state dry gas production reached 106.8 billion cubic feet per day (bcf/day), marking an increase of 6.9% year-over-year, as reported by BNEF. Conversely, lower-48 state gas demand fell to 65.9 bcf/day, a decline of 7.3% year-over-year. Additionally, LNG net flows to U.S. export terminals measured at 15.0 bcf/day, down 5.6% week-on-week.

The growth in U.S. electricity output positively influences demand for natural gas from utility companies. The Edison Electric Institute highlighted that total U.S. electricity output in the week ending April 12 rose by 6.4% year-over-year, reaching 73,420 GWh (gigawatt hours). For the 52-week period ending April 12, electricity output increased by 3.7% year-over-year to a total of 4,247,718 GWh.

Policy Changes and Long-Term Outlook

A bullish longer-term development for natural gas prices occurred earlier this year when President Trump lifted the Biden administration’s hold on approving gas export projects. This allows for the consideration of a backlog of approximately a dozen LNG export projects, which could amplify demand for U.S. natural gas and provide support for prices.

Inventory Data and Rig Counts

Last Thursday’s weekly EIA report provided further insights into pricing trends. For the week ending April 11, natural gas inventories rose by 16 bcf, falling short of the 24 bcf expectation and the 5-year average draw of 50 bcf. As of April 11, inventories were down 20.9% year-over-year and 3.9% lower than the 5-year seasonal average, indicating tighter supplies. In Europe, gas storage was reported to be 36% full by April 15, compared to the 5-year average of 47% full for this time of year.

Baker Hughes reported that the number of active natural gas drilling rigs in the U.S. increased by one to 98 rigs in the week ending April 18. This figure remains slightly above the 3-1/2 year low of 94 rigs set on September 6, 2024. Active rigs have notably decreased from a 5-1/4 year peak of 166 rigs recorded in September 2022, down from a record low of 68 rigs during the pandemic in July 2020.

On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy
here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.