Natural Gas Prices Drop Amid Expected Supply Increase

June Nymex natural gas (NGM25) closed down by -0.060, or -1.77%, on Wednesday.

Market Overview: Supply Expectations Affect Prices

On Wednesday, June natural gas prices settled lower, driven by predictions of increasing natural gas supplies in the U.S. The upcoming Thursday EIA report forecasts a rise in natural gas inventories by +109 Bcf, significantly above the five-year average of +58 Bcf for this time of year. Warm spring temperatures are enabling supplies to build. According to NatGasWeather, near-normal weather across the U.S. through May 14 will keep demand for natural gas light, allowing inventories to rise further.

Recent Price Movements

Last Thursday, natural gas prices hit a five-month low as warm spring conditions reduced heating demand, facilitating supply replenishment. The EIA report from last Thursday indicated an increase in natural gas inventories of +88 Bcf for the week ending April 18, surpassing expectations of +75 Bcf and significantly above the five-year average build of +58 Bcf.

Previously, natural gas prices surged to a two-year high last month due to signs that U.S. storage levels could remain tight ahead of the summer air-conditioning season. BloombergNEF has projected that U.S. gas storage will be 10% below the five-year average this summer.

Production and Demand Insights

On Wednesday, Lower-48 state dry gas production stood at 105.7 Bcf/day, marking a year-over-year increase of +5.7%. In contrast, gas demand in the Lower-48 states was 67.8 Bcf/day, down by -1.5% year over year. Additionally, LNG net flows to U.S. export terminals reached 15.8 Bcf/day, showing a week-over-week increase of +4.4%.

Electricity Output and Natural Gas Demand

An uptick in U.S. electricity output can positively impact natural gas demand from utility providers. The Edison Electric Institute reported a +5.2% year-over-year increase in total U.S. electricity output for the week ending April 26, reaching 73,210 GWh. Over the 52-week period ending April 26, U.S. electricity output rose +3.8% to 4,252,848 GWh.

Long-Term Prospects for Natural Gas Prices

A bullish long-term factor for natural gas prices arose when President Trump lifted the Biden administration’s pause on approving gas export projects in January. This action has reopened consideration for about a dozen LNG export projects, which could enhance U.S. capacity for LNG exports, increasing demand for U.S. natural gas and potentially supporting prices.

Inventory Status and International Comparisons

The previous EIA report appeared bearish for prices, showing that natural gas inventories rose +88 Bcf, exceeding expectations and the five-year average build for this time of year. As of April 18, inventories were down -20.2% year-over-year and -2.3% below the five-year seasonal average, indicating tight supplies. In Europe, gas storage was 39% full as of April 27, compared to the five-year seasonal average of 49%.

Active Drilling Rigs Report

Baker Hughes reported that the number of active U.S. natural gas drilling rigs rose by one to 99 in the week ending April 25. This figure is modestly above the four-year low of 94 rigs recorded on September 6, 2024. Active rigs have dropped from a 5.5-year high of 166 rigs in September 2022, following a pandemic-era low of 68 rigs 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 are solely for informational purposes. For more information, please view the Barchart Disclosure Policy here.

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