June Natural Gas Prices Decline After Inventory Increase
On Thursday, June Nymex natural gas (NGM25) prices fell by -0.029 (-0.80%).
Inventory Reports Drive Prices Lower
Trading began with an upward trend as prices advanced, but this was followed by moderate losses when weekly natural gas inventories increased more than anticipated. The EIA reported that natural gas inventories for the week ending May 2 rose by +104 bcf, surpassing expectations of +101 bcf.
Weather Patterns Affect Demand
Initially, prices moved higher due to forecasts suggesting above-average U.S. temperatures. These conditions could increase natural gas demand from electricity providers for air conditioning. NatGasWeather.com indicated that the forecast for the southern and southeastern regions of the U.S. shifted, predicting highs in the 90s for May 14-19.
Last month, natural gas prices dropped to a 5.5-month low as warm spring weather reduced heating demand, facilitating supply rebuilds. According to NatGasWeather, moderate weather is set to continue, keeping demand light and allowing inventories to rise further.
Market Context and Projections
In March, natural gas prices surged to a two-year high due to concerns about tight storage levels ahead of the summer cooling season. BloombergNEF forecasts that U.S. gas storage will remain 10% below the five-year average this summer.
Production and Demand Statistics
Dry gas production in the lower 48 states reached 104.6 bcf/day on Thursday, marking a 5.1% year-over-year increase, according to BNEF. However, gas demand in the lower 48 states was 66.2 bcf/day, down 7.4% year-over-year. Additionally, LNG net flows to U.S. export terminals dropped to 14.7 bcf/day, a 2.9% weekly decline.
Electricity Output Insights
Increased U.S. electricity output suggests a rise in natural gas demand from utility providers. The Edison Electric Institute reported that total electricity output for the lower 48 states increased by +1.2% year-over-year to 74,373 GWh for the week ending May 3, and for the 52-week period ending May 3, generated 4,253,707 GWh—up +3.7% year-over-year.
Drilling Activity Trends
The latest EIA report, released Thursday, highlighted bearish sentiment for natural gas prices. It noted that inventories rose by +104 bcf, exceeding expectations and significantly above the five-year average build of +79 bcf. As of May 2, inventories were 16.5% lower year-over-year but 1.4% above their five-year seasonal average, indicating sufficient supply levels. In Europe, gas storage was reported at 41% capacity as of May 5, compared to the five-year average of 51%.
Baker Hughes indicated that the number of active U.S. natural gas drilling rigs increased by 2 to reach 101 rigs for the week ending May 2. This figure is slightly above the four-year low of 94 rigs recorded on September 6, 2024. Activity levels have decreased since hitting a 5.5-year high of 166 rigs in September 2022, following a pandemic-era low of 68 rigs in July 2020 (data spanning 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 intended for informational purposes only.
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