Nymex Natural Gas Prices Drop Amid Surging Inventory Levels

May Nymex natural gas (NGK25) closed down on Thursday by -0.092 (-3.04%).

Market Reaction to EIA Inventory Data

On Thursday, natural gas prices plummeted to a five-month low, driven by a larger-than-expected increase in the Energy Information Administration (EIA) weekly natural gas supplies report. The EIA reported an inventory rise of +88 billion cubic feet (bcf) for the week ending April 18, surpassing expectations of +75 bcf and exceeding the five-year average of +58 bcf for this time of year.

Trends in Production and Demand

Last month, natural gas prices soared to a two-year high amid concerns about tight storage levels leading up to the summer air-conditioning demand. BloombergNEF forecasts that U.S. gas storage will remain 10% below the five-year average this summer.

According to BNEF, lower-48 state dry gas production reached 104.6 bcf/day on Thursday, marking a +4.0% increase year-over-year. However, gas demand in the lower-48 states fell to 64.0 bcf/day, down -12% from last year. Notably, net flows of liquefied natural gas (LNG) to U.S. export terminals were reported at 15.7 bcf/day, an increase of +7.0% week-over-week.

Positive Impact from Electricity Demand

An increase in U.S. electricity output bodes well for natural gas demand from utility providers. The Edison Electric Institute reported that total U.S. electricity output for the week ending April 19 rose by +2.1% year-over-year, reaching 72,587 GWh (gigawatt hours). Over the 52-week period concluding April 19, electricity output increased by +3.7% year-over-year, totaling 4,249,233 GWh.

Long-Term Outlook and Government Policy

A potentially bullish factor for natural gas prices emerged when President Trump lifted the Biden administration’s pause on approving gas export projects in January. This revival allows for consideration of about a dozen LNG export projects, which could enhance U.S. capacity to export LNG, thus increasing demand for U.S. natural gas and stabilizing prices.

Current Inventory Levels and Market Sentiment

The latest weekly EIA report was considered bearish for natural gas prices, as reported inventories rose by +88 bcf, exceeding expectations and sitting well above the five-year build average. As of April 18, inventories were down -20.2% compared to last year and -2.3% below their seasonal average, indicating tight supplies. In Europe, gas storage was 38% full as of April 22, compared to the five-year seasonal average of 48%.

Drilling Rig Activity

Baker Hughes reported an increase in active U.S. natural gas drilling rigs, which rose by +1 to 98 rigs for the week ending April 18. This figure is a modest uptick from the 3-1/2 year low of 94 rigs recorded on September 6, 2024. Active rigs have declined significantly since hitting a 5-1/4 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 details, please view the Barchart Disclosure Policy.

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