Natural Gas Prices Decrease after Weekly Reserves Increase Beyond Predicted Levels
Rewritten Article:
wisps of June natural gas (NGM25) plummeted by -0.80% or -0.029 on Thursday, marking a downward trend.
Optimistic weather predictions for increased air-conditioning demand had initially driven June's nat-gas prices upward on Thursday. However, the resulting rush in inventories left many investors questioning the upward trend, as the Energy Information Administration (EIA) reported a week-on-week rise of +104 billion cubic feet (Bcf) for the week ended May 2 – remarkably surpassing expectations of +101 Bcf.
Nat-gas prices initially surged in anticipation of temperatures soaring in the southern and southeastern United States for May 14-19, with highs projected to reach the '90s. NatGasWeather.com had confirmed these forecasts in their Thursday update. However, the subsequent inventory growth had eroded the early gains, putting a damper on nat-gas prices.
The month prior, natural gas prices plunged to a five-and-a-half-month low due to the mild US weather, which curtailed heating demand for nat-gas and allowed supplies to flourish. NatGasWeather indicated that the weather would remain relatively normal through May 14, with inventory levels continuing to ascend as a result.
In March, nat-gas prices surged to a two-year high on the expectation that US nat-gas storage levels may remain tight during the summer air-conditioning season. According to BloombergNEF, US gas storage is likely to be 10% below the five-year average this summer.
Thursday's US dry gas production stood at 104.6 billion cubic feet per day (bcf/day), marking a 5.1% Year-On-Year (YoY) increase. Lower-48 state gas demand on Thursday dipped by 7.4% YoY to land at 66.2 bcf/day. Meanwhile, LNG net flows to US LNG export terminals declined by 2.9% week-on-week (w/w) to 14.7 bcf/day on Thursday.
The increase in US electricity output is beneficial for nat-gas demand from utility providers. The Edison Electric Institute reported that total US electricity output in the week ended May 3 had increased by 1.2% YoY to 74,373 gigawatt hours (GWh), while output for the 52-week period ending May 3 had risen by 3.7% YoY to 4,253,707 GWh.
While the weekly EIA report indicated a bearish outlook for nat-gas prices, the substantial inventory increase was expected. The EIA report for the week ended May 2 suggested an inventory build-up of 104 Bcf, surpassing market expectations and the 5-year average build for this time of year of 79 Bcf. As of May 2, nat-gas inventories had declined by 16.5% YoY but still sat 1.4% above their 5-year seasonal average. In Europe, gas storage levels were a modest 41% full compared to the 5-year seasonal average of 51% for this period.
Baker Hughes reported that the number of active US nat-gas drilling rigs had risen by 2 to 101 rigs for the week ending May 2. This figure remains modestly above the 4-year low of 94 rigs reached on September 6, 2024, but significantly below the spike of 166 rigs witnessed in September 2022 and the pandemic-era record low of 68 rigs in July 2020.
At the publication date, Rich Asplund had no positions in any of the securities mentioned in this article. The information and data in this article is solely intended for informational purposes. For further information, refer to our website's Disclosure Policy here.*
Enrichment Insights:- The current natural gas market is experiencing a rebound from late-winter lows due to an increased demand for air-conditioning brought by above-average US temperatures and slightly elevated inventories compared to seasonal averages.- Despite the recent bearish EIA storage report, the market remains cautiously optimistic thanks to current demand forecasts, tight supply conditions, and growing exports.
- The unexpected surge in natural gas inventory, unlike initial forecasts, caused a tumble in nat-gas prices on Thursday, eroding earlier gains.
- month-long optimistic weather forecasts for increased air-conditioning demand had initially driven June's nat-gas prices upward, but the resulting inventory growth left many investors questioning the upward trend.
- In the following month, natural gas prices plunged to a five-and-a-half-month low due to mild US weather, a factor that allowed supplies to flourish and curtail heating demand for nat-gas.
- Despite the bearish outlook for nat-gas prices suggested by the weekly EIA report, the substantial inventory increase was expected, given the demand forecasts and tight supply conditions.
- The renewable-energy industry might benefit from the increase in US electricity output, as utility providers demand more nat-gas, but the overall market remains cautiously optimistic about the nat-gas situation.
- The investment landscape in both the renewable-energy and oil-and-gas industries could face significant shifts as a result of the changing dynamics in the nat-gas market and stock-market trends.
