Natural Gas Prices Decline Amid Surplus Supplies and Demand Variability

May Nymex natural gas (NGK25) closed on Tuesday at -0.009 (-0.30%).

The decline in natural gas prices continued on Tuesday, as they extended a three-week sell-off to reach a five-month low for nearest-futures contracts. Warmer-than-normal temperatures in the U.S. this spring have decreased heating demand and increased natural gas inventories, which exerted downward pressure on prices. The Commodity Weather Group reported that forecasts indicated warmer conditions for the Midwest and eastern U.S. from April 27 to May 1.

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Last month, natural gas prices surged to a two-year high due to concerns over tight U.S. storage levels ahead of the summer cooling season. BloombergNEF estimates that U.S. gas storage may be 10% below the five-year average this summer.

According to BNEF, the Lower-48 states produced 104.9 billion cubic feet per day (bcf/day) of dry gas on Tuesday, reflecting a year-over-year increase of 4.7%. However, gas consumption in the Lower-48 states dropped to 66.1 bcf/day, down 5.2% from last year. Simultaneously, LNG net flows to U.S. export terminals were 15.6 bcf/day, marking a slight weekly increase of 0.2%.

Increased electricity output in the U.S. is a positive sign for natural gas demand among utility providers. The Edison Electric Institute reported a 6.4% year-on-year rise in total U.S. electricity output for the week ending April 12, reaching 73,420 GWh. In the 52-week period ending the same date, U.S. electricity output increased by 3.7% to 4,247,718 GWh.

A longer-term positive factor for natural gas prices is President Trump’s decision to end the Biden administration’s moratorium on approving gas export projects. This action has enabled a backlog of approximately a dozen LNG export projects to move forward, which could enhance U.S. capacity for LNG exports and accordingly boost natural gas demand and prices.

Last week, the EIA’s report was a positive indicator for natural gas prices. It noted that inventories rose by 16 bcf for the week ending April 11, falling short of the expected increase of 24 bcf and significantly below the five-year average draw of 50 bcf for the same period. As of April 11, natural gas inventories were down 20.9% compared to last year and 3.9% below their five-year average, suggesting tight supply. In Europe, storage was reported to be 37% full as of April 20, compared to the five-year average of 48%.

Baker Hughes reported an increase in the number of active U.S. natural gas drilling rigs, which rose by one to 98 rigs for the week ending April 18. This figure remains slightly above the 3.5-year low of 94 rigs reached on September 6, 2024. Active drilling rigs have seen a decline from a high of 166 rigs in September 2022, which followed a record low of 68 rigs during the pandemic in July 2020, based on data going back to 1987.

On the date of publication, Rich Asplund did not hold any positions, directly or indirectly, in the securities mentioned in this article. All information and data provided are for informational purposes. For more details, please view the Barchart Disclosure Policy.

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