Natural Gas Prices Hit Two-Week Low Amid Cooling Forecasts

June Nymex natural gas (NGM25) closed down Friday by -0.028 (-0.83%). Prices dropped to a fresh two-week low due to expectations of cooler spring temperatures in the U.S. This weather outlook is likely to reduce natural gas demand from electricity providers for air conditioning. Forecaster Atmospheric G2 noted that temperatures in the eastern and northern parts of the U.S. will be below normal from May 21-25. Consequently, the decrease in demand allows U.S. supplies to increase, with EIA natural gas inventories reported as being +2.6% above their five-year seasonal average as of May 9.

Production and Demand Trends

On Friday, dry gas production in the Lower 48 states was 105.5 bcf/day, reflecting a year-on-year increase of 4.7%, according to BNEF. However, demand in these states decreased to 67.3 bcf/day, down 1.6% year-on-year. Additionally, LNG net flows to U.S. export terminals were at 14.7 bcf/day, showing a decline of 1.1% week on week.

Electricity Output and Inventory Analysis

A decrease in U.S. electricity output negatively impacts natural gas demand from utility providers. The Edison Electric Institute reported a 2.8% year-on-year decline in total U.S. electricity output for the week ending May 10, reaching 72,735 GWh. Despite this, electricity output for the 52-week period ending May 10 rose by 3.6% year-on-year to 4,251,600 GWh.

The weekly EIA report released on Thursday was bearish for natural gas prices. It stated that natural gas inventories rose by 110 bcf for the week ending May 9, aligning with expectations but exceeding the five-year average build of 83 bcf for this time of year. As of May 9, natural gas inventories were down 14.6% year-on-year but +2.6% above their five-year seasonal average, indicating adequate supplies. In Europe, gas storage was reported as 44% full as of May 14, compared to a five-year seasonal average of 54% full at this time.

Drilling Activity Insights

Baker Hughes reported a decrease in the number of active U.S. natural gas drilling rigs, which fell by one to 100 rigs for the week ending May 16. This figure remains modestly above the four-year low of 94 rigs recorded on September 6, 2024. Active rigs have declined from a five-and-a-half-year high of 166 rigs in September 2022, which came after the pandemic-era low of 68 rigs in July 2020, a trend observed 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 are solely for informational purposes. For more information, please view the Barchart Disclosure Policy here.

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