Natural Gas Prices Drop Amid Strong Supply and Cooler Weather Predictions

On Friday, July Nymex natural gas (NGN25) closed down by -0.075, reflecting a -2.13% decline.

Prices faced downward pressure due to indications of surplus supplies. EIA data indicates that US natural gas inventories are currently +3.9% above the five-year seasonal average as of May 23.

Forecasts for cooler US spring temperatures are also affecting natural gas prices. The Commodity Weather Group reported that expected temperatures in the central US for June 3-7 have turned cooler, which could reduce demand from electricity providers for air conditioning.

Lower-48 state dry gas production reached 105.9 bcfd (+3.8% year-over-year) on Friday, according to BNEF. In comparison, demand was at 68.1 bcfd (+3.5% year-over-year) on the same day. Net LNG flows to US export terminals decreased to 13.6 bcfd (-6.1% week-over-week) as per BNEF data.

A downturn in US electricity output negatively impacts natural gas demand. The Edison Electric Institute reported a -4.4% year-over-year decline in total US electricity output to 77,837 GWh for the week ending May 24, although the annual output for the past 52 weeks increased by +3.25% year-over-year to 4,249,859 GWh.

The EIA’s weekly report on Thursday added to the bearish sentiment, highlighting that natural gas inventories for the week ending May 23 rose by +101 bcf, slightly exceeding the 5-year average build of +98 bcf for this time of year. Despite this increase, inventories are down -11.7% year-over-year but remain +3.9% above their 5-year seasonal average, indicating sufficient supply. In Europe, gas storage levels were at 47% full as of May 26, compared to the 5-year average of 58% for this time of year.

Baker Hughes reported an increase in the number of active US natural gas drilling rigs, which rose by +1 to 99 rigs in the week ending May 30. This is a modest rise above the recent four-year low of 94 rigs recorded on September 6, 2024. Active rigs have decreased from a 5-1/2 year high of 166 rigs in September 2022, down from a pandemic-era low of 68 rigs in July 2020.

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.

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