Natural Gas Prices Drop to Three-Week Low Amid Supply Surge
On Monday, June Nymex natural gas (NGM25) recorded a close at -0.221, marking a decrease of 6.63%. This decline extends its week-long downturn, reaching a three-week low. The primary factors influencing this shift include plentiful supplies and expectations for continued cool temperatures in the U.S. spring.
As of May 9, EIA natural gas inventories were 2.6% higher than the five-year seasonal average, indicating sufficient supplies. Additionally, the Commodity Weather Group noted that forecasts for the southern U.S. for the period of May 29 to June 2 have shifted cooler, which is likely to reduce electricity demand for air conditioning.
On the production side, lower-48 state dry gas output was reported at 106.3 bcf/day, reflecting a year-on-year increase of 5.5%, according to BNEF. Meanwhile, gas demand in the lower-48 states stood at 65.5 bcf/day, up 1.3% compared to the previous year. Net flows of LNG to U.S. export terminals reached 15.2 bcf/day, a slight week-on-week increase of 1.2%.
However, a decrease in U.S. electricity output poses a risk to natural gas demand from utility providers. The Edison Electric Institute indicated that total electricity output in the lower-48 states for the week ending May 10 fell by 2.8% year-on-year to 72,735 GWh. In contrast, electricity output over the 52-week period up to May 10 saw a decline of 3.6% year-on-year, totaling 4,251,600 GWh.
The last Thursday’s EIA report provided a bearish outlook for natural gas prices. Inventories for the week ending May 9 rose by 110 bcf, which met expectations but exceeded the five-year average build for this time of year of 83 bcf. Although inventories are down 14.6% year-on-year, they remain 2.6% higher than the five-year average, reinforcing the notion of adequate supplies. In Europe, gas storage levels were reported at 44% as of May 14, compared to a typical five-year average of 54%.
Baker Hughes reported that the count of active U.S. natural gas drilling rigs fell by one to 100 rigs in the week ending May 16. This figure is still modestly above the four-year low of 94 rigs recorded on September 6, 2024. Active rigs have declined from a 5.5-year peak 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 hold positions in any mentioned securities. All information presented is for informational purposes only. To learn more, please view the Barchart Disclosure Policy.
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