Natural Gas Prices Dip Amid Inventory Concerns and Demand Shifts
June Nymex natural gas (NGM25) closed down by -0.314 (+10.09%) on Wednesday.
Market Trends and Inventory Expectations
On Wednesday, natural gas prices surrendered early gains, settling lower and reversing some of Tuesday’s significant increases. Long liquidation pressures emerged in nat-gas futures amid expectations of ongoing builds in EIA nat-gas inventories. Analysts predict that the upcoming EIA report will show an inventory increase of +119 billion cubic feet (bcf) for the week ending May 16, surpassing the five-year average of +87 bcf for this period.
Weather and Demand Influences
Initially on Wednesday, nat-gas prices extended Tuesday’s sharp gains due to forecasts of warm weather, which is expected to drive up demand from electricity providers for air conditioning. Atmospheric G2 projected that temperatures in the Northeast, South, and West would be significantly above normal from May 26 to 30, especially for the central and Midwest regions.
Production and Consumption Statistics
According to BNEF, dry gas production in the lower-48 states reached 105.5 bcf/day on Wednesday, reflecting a 4.4% year-over-year increase. In contrast, gas demand in these states fell to 67.5 bcf/day, down 3.8% year-over-year. Additionally, net flows of liquefied natural gas (LNG) to U.S. LNG export terminals were reported at 14.8 bcf/day, increasing by 1.8% week-over-week.
Electricity Output and Nat-Gas Demand
Increases in U.S. electricity output are favorable for nat-gas demand. The Edison Electric Institute reported a 2.5% year-over-year rise in total electricity output for the week ending May 17, amounting to 75,855 GWh. Over a 52-week period ending the same date, electricity production rose by 3.67% to a total of 4,253,433 GWh.
Recent EIA Reports and European Supply Levels
Last Thursday’s EIA report was viewed as bearish for nat-gas prices, showing a rise of +110 bcf in inventories for the week ending May 9. This figure met expectations but was notably higher than the average five-year build of +83 bcf for this period. As of May 9, inventories were down 14.6% year-over-year but 2.6% above the five-year seasonal average, indicating sufficient nat-gas supplies. In Europe, gas storage stood at 45% full as of May 18, below the five-year seasonal average of 55%.
Rig Count Developments
Baker Hughes reported that the number of active U.S. nat-gas drilling rigs decreased by one to 100 rigs in the week ending May 16, slightly above the four-year low of 94 rigs recorded on September 6, 2024. This marks a decline from the 5.5-year high of 166 rigs seen in September 2022, significantly lower than the pandemic-era record low of 68 rigs in July 2020, based on data since 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 those of the author and do not necessarily reflect those of Nasdaq, Inc.
