Natural Gas Prices Rise Slightly Amid Ongoing Market Adjustments

On Friday, May Nymex natural gas (NGK25) closed at +0.007 (+0.24%). Modest gains in prices followed a month-long downturn that pushed them into oversold territory. This shift sparked some technical short-covering in nat-gas futures.

Market Dynamics

Nat-gas prices fell to a five-month low on Thursday, influenced by warm spring weather in the US, which reduced heating demand and allowed inventories to grow. The recent weekly EIA report indicated that nat-gas inventories increased by +88 billion cubic feet (bcf) for the week ended April 18, surpassing expectations of a +75 bcf rise and significantly exceeding the five-year average of +58 bcf.

In the previous month, nat-gas prices had surged to a two-year high, driven by expectations that US gas storage levels could remain tight in anticipation of the summer cooling season. BloombergNEF anticipates that US gas storage will be about 10% below the five-year average this summer.

Production and Demand Insights

As of Friday, dry gas production in the Lower-48 states was recorded at 104.4 bcf/day, reflecting a +3.8% increase year-over-year, according to BNEF. In contrast, gas demand in the same region dropped to 66.8 bcf/day, down 7% year-over-year. LNG net flows to US export terminals reached 15.3 bcf/day, decreasing by 3.0% week-over-week, as reported by BNEF.

Increased electricity generation can positively impact nat-gas demand from utilities. The Edison Electric Institute disclosed that total US electricity output in the week ending April 19 rose +2.1% year-over-year to 72,587 GWh, while the total for the 52-week period ending April 19 increased by +3.7% year-over-year to 4,249,233 GWh.

Future Outlook for Natural Gas

A longer-term bullish factor for nat-gas prices is the easing of restrictions on gas export projects. In January, President Trump lifted the Biden administration’s pause on approving these projects, allowing around a dozen LNG export proposals to move forward. Increased export capacity would amplify demand for US nat-gas and positively influence prices.

Despite the bullish outlook, Thursday’s EIA report presented a bearish sentiment, with inventories rising +88 bcf, surpassing expectations. As of April 18, inventories were down -20.2% year-over-year and -2.3% below the five-year seasonal average, indicating constrained nat-gas supplies. In Europe, gas storage was reported at 38% full as of April 22, compared to the five-year average of 48% full for this period.

Drilling Activity

Baker Hughes reported a slight increase in the number of active US nat-gas drilling rigs, which rose by 1 to 99 rigs as of the week ending April 25. This level remains slightly above the four-year low of 94 rigs recorded on September 6, 2024, and is particularly notable when considering the peak of 166 rigs reached in September 2022, following a dip to 68 rigs during the pandemic in July 2020.

On the date of publication, Rich Asplund did not hold positions in any of the securities mentioned in this article. All data is solely for informational purposes. For more information, please view the Barchart Disclosure Policy here.

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