Natural Gas Prices Rise as Demand Forecasts Shift

June Nymex natural gas (NGM25) closed up by +0.043 (+1.29%) on Tuesday.

Weather Forecasts Boost Natural Gas Prices

On Tuesday, natural gas prices reached a 1-1/2 week high, settling moderately higher. This increase was driven by below-normal temperature forecasts, which are expected to raise heating demand for natural gas. The Commodity Weather Group reported that the outlook for the eastern and southern United States has shifted to cooler temperatures for May 9-12.

Recent Trends in Natural Gas Prices

Last Thursday, natural gas prices fell to a five-month low due to warm spring weather diminishing heating demand and allowing supplies to rebuild. According to the Energy Information Administration (EIA), natural gas inventories rose by +88 billion cubic feet (bcf) for the week ending April 18, surpassing expectations of +75 bcf and far exceeding the five-year average of +58 bcf for this time of year.

Despite this recent dip, natural gas prices rallied last month, hitting a two-year high prompted by expectations that storage levels could remain tight ahead of summer’s air-conditioning season. BloombergNEF anticipates that US gas storage will be 10% below the five-year average this summer.

Production and Demand Statistics

On Tuesday, lower-48 state dry gas production was recorded at 105.6 bcf/day, a year-over-year increase of +5.8%, according to BloombergNEF. However, lower-48 state gas demand decreased to 65.7 bcf/day, down by -2.7% year-over-year. LNG net flows to US export terminals increased to 15.8 bcf/day, rising +1.5% week-over-week.

A rise in US electricity output is favorable for natural gas demand from utility providers. The Edison Electric Institute reported an increase in total US (lower-48) electricity output of +2.1% year-over-year to 72,587 gigawatt hours (GWh) for the week ending April 19. Over the past year, output rose +3.7% to a total of 4,249,233 GWh.

Long-Term Outlook for Natural Gas Prices

In a positive development for long-term natural gas pricing, President Trump lifted the pause imposed by the Biden administration on gas export project approvals in January. This decision has moved about a dozen LNG export projects into active consideration, which would likely increase demand for US natural gas and support pricing in this sector.

However, last week’s EIA report presented a bearish outlook, highlighting a significant increase in natural gas inventories above expectations. With current inventories down -20.2% year-over-year and -2.3% below the five-year seasonal average, supplies remain tight. In Europe, gas storage was only 39% full as of April 27, compared to the five-year seasonal average of 49%.

Drilling Activity Trends

Baker Hughes reported last Friday that active US natural gas drilling rigs increased by one, reaching a total of 99 rigs for the week ending April 25. This figure remains slightly above the four-year low of 94 rigs recorded on September 6, 2024. Active rig counts have decreased since peaking at 166 rigs in September 2022, following a pandemic-era low of 68 rigs in July 2020 (data dating back to 1987).

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.