Natural Gas Prices Decline Amid Mixed Weather and EIA Report

May Nymex natural gas (NGK25) saw a significant decline on Thursday, closing down by -0.259, or -6.79%.

Market Influences on Natural Gas Prices

On Thursday, natural gas prices dropped sharply as a selloff in equity markets created risk-off sentiment. Additionally, a mixed weather forecast weighed on prices. Atmospheric G2 reported a shift to cooler temperatures in the eastern US, while warmer temperatures are expected in the central and western regions from April 15-19.

Weekly EIA Inventory Report

The Energy Information Administration’s (EIA) report on weekly natural gas inventories was slightly bearish. Inventories increased by +57 billion cubic feet (bcf), which aligned closely with expectations of +58 bcf. However, this figure is significantly higher than the five-year average increase of +17 bcf for this time of year.

Production and Demand Statistics

Last month, natural gas prices surged to a two-year high as indications emerged that US storage levels might remain tight, particularly ahead of the summer air-conditioning season. BloombergNEF predicts that US gas storage could be 10% below the five-year average this summer.

According to BNEF, dry natural gas production in the lower-48 states was 105.5 bcf per day, reflecting a year-over-year increase of +4.6%. In contrast, gas demand in lower-48 states was reported at 78.7 bcf per day, a notable rise of +13.7% year-over-year. Additionally, liquefied natural gas (LNG) net flows to US export terminals reached 16.7 bcf per day, marking a week-over-week increase of +7.0%.

Electricity Output and Natural Gas Demand

Increased US electricity production contributes positively to natural gas demand from utility providers. The Edison Electric Institute reported that total electricity output in the lower-48 states rose by +4.05% year-over-year to 74,475 gigawatt-hours (GWh) for the week ending April 5. Moreover, electricity output for the 52-week period ending April 5 saw a year-over-year increase of +3.64%, totaling 4,243,287 GWh.

Future Outlook for Natural Gas Prices

Looking ahead, a bullish long-term factor for natural gas prices is the lifting of the Biden administration’s pause on approving gas export projects, which President Trump enacted in January. This move paves the way for roughly a dozen LNG export projects currently in a backlog. An increase in US LNG export capacity is likely to bolster demand for domestic natural gas and support its prices.

The weekly EIA report indicated that natural gas inventories increased by +57 bcf for the week ending April 4. This aligns closely with expectations of +58 bcf and far exceeds the five-year average increase of +17 bcf for this period. As of April 4, natural gas inventories were down -19.8% year-over-year and -2.1% below their five-year seasonal average, highlighting tight supply conditions. In Europe, gas storage was reported to be 35% full as of April 7, compared to a five-year seasonal average of 46% full.

Drilling Rig Activity

Baker Hughes reported a decline in the number of active US natural gas drilling rigs. In the week ending April 4, the count fell by seven to a six-and-a-half-month low of 96 rigs, remaining slightly above the three-and-a-half-year low of 94 rigs recorded on September 6, 2024. Active rigs have decreased significantly since reaching a five-and-a-quarter-year high of 166 rigs in September 2022, following the pandemic-era record low of 68 rigs in July 2020, a situation reflected in 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 those of the author and do not necessarily reflect those of Nasdaq, Inc.