Natural Gas Prices Decline Sharply Amid Inventory Concerns

On Wednesday, June Nymex natural gas (NGM25) fell by -0.194, closing down -5.71%.

After an initial increase, June nat-gas prices dropped to a one-week low as fund liquidations affected market sentiment ahead of the contract’s expiration.

Anticipations of a higher-than-normal build in weekly nat-gas inventories further pressured prices. Analysts project that Thursday’s weekly EIA report will show an inventory increase of +107 bcf for the week ending May 23, surpassing the five-year average of +98 bcf.

Price losses intensified as weather forecasts predicted cooler temperatures for the eastern and central U.S., potentially reducing nat-gas demand for air conditioning. According to Atmospheric G2, temperatures are expected to drop from June 2-6.

On Wednesday, dry gas production in the lower-48 states was reported at 106.3 bcf/day, marking a 3.5% increase year-over-year, while demand stood at 68.4 bcf/day, representing a 2.8% year-over-year rise. LNG net flows to U.S. terminals dropped to 14.5 bcf/day, down 3.5% week-over-week.

Increased U.S. electricity output has been encouraging for nat-gas demand from utilities. The Edison Electric Institute noted that total U.S. electricity output in the week ending May 17 rose by 2.5% year-over-year to 75,855 GWh, while the output over the preceding 52 weeks increased by 3.67% year-over-year to 4,253,433 GWh.

The recent EIA report was bearish for nat-gas prices, indicating an inventory increase of +120 bcf for the week ending May 16, slightly above expectations and significantly above the five-year average of +87 bcf. As of the same date, inventories were down 12.7% year-over-year but 3.9% above the seasonal average, suggesting adequate supply. In Europe, gas storage was 47% full as of May 26, compared to the 58% five-year average.

Baker Hughes reported a decrease of -2 in active U.S. nat-gas drilling rigs for the week ending May 23, totaling 98 rigs. This figure remains modestly above the four-year low of 94 rigs recorded on September 6, 2024, showing a decline from the 5.5-year peak of 166 rigs in September 2022, following a record low of 68 rigs in July 2020.

On the date of publication, Rich Asplund did not have any financial interests in the securities mentioned. All information provided is for informational purposes only. For details, please view the
Barchart Disclosure Policy.

The views expressed in this article do not necessarily reflect those of Nasdaq, Inc.