Nat-Gas Prices Fall as Weekly EIA Inventories Climb More Than Expected

July Nymex natural gas futures fell 1.05% on Thursday after the EIA reported a larger-than-expected increase in weekly natural gas inventories, rising +122 bcf versus expectations of +113 bcf and a five-year average of +98 bcf. The report indicated adequate natural gas supplies, with inventories 4.7% above the 5-year seasonal average, despite being down 10.4% year-over-year; prices initially rallied on forecasts for hotter weather in the Midwest and Northeast before reversing course.

Analysis

July Nymex natural gas futures (NGN25) reversed from a one-week high to close down 1.05% (-0.039), primarily driven by a bearish Energy Information Administration (EIA) inventory report for the week ending May 30. The report detailed a substantial +122 billion cubic feet (bcf) build in natural gas storage, significantly exceeding the consensus expectation of +113 bcf and the five-year average build of +98 bcf for this period. This larger-than-anticipated increase pushed total U.S. natural gas inventories to 4.7% above their five-year seasonal average, signaling adequate supply levels, even though they remain 10.4% below year-ago figures. Initial price support, observed earlier in the session, stemmed from forecasts by Vaisala for hotter weather across the U.S. Midwest and Northeast for June 10-14, which could potentially boost cooling demand from electricity providers. However, this was insufficient to counteract several bearish fundamental factors. These included a 3.1% year-over-year increase in Lower-48 states' dry gas production to 105.0 bcf/day, a 2.7% year-over-year decline in Lower-48 states' gas demand to 70.4 bcf/day, and a 6.4% week-over-week decrease in LNG net flows to U.S. export terminals to 13.4 bcf/day, according to BNEF. Further pressuring demand, the Edison Electric Institute reported that U.S. electricity output for the week ended May 31 fell 1.8% year-over-year. While Baker Hughes reported a marginal increase of +1 in active U.S. natural gas drilling rigs to 99 for the week ending May 30, this figure remains significantly below the 2022 peak of 166 rigs and only modestly above the recent four-year low, suggesting potential constraints on long-term supply growth if rig activity does not see a sustained recovery.

Key Decisions for Investors

• Investors should exercise caution regarding near-term bullish positions in natural gas, given the significant inventory build that pushed storage 4.7% above the five-year average, coupled with robust domestic production and weakening demand indicators.
• Closely monitor short-term weather forecasts, particularly for the U.S. Midwest and Northeast, as sustained hotter-than-average temperatures could temporarily increase cooling-related gas demand and provide short-lived price support.
• Key metrics to watch include weekly EIA storage reports for ongoing supply trends, Lower-48 production figures for supply-side pressures, and LNG export flow data which impacts overall demand on U.S. gas.
• While current inventory levels suggest market looseness relative to the five-year average, the year-over-year deficit and the persistently low active drilling rig count (99 rigs) warrant attention for potential market tightening should demand unexpectedly surge or production falter in the medium to long term.