Nat-gas Prices Fall on Ample Storage and Cooler US Temps

Natural gas futures (NGN25) fell nearly 4% Monday due to abundant U.S. supplies, forecasts for increased production as indicated by a 15-month high in active gas rigs, and cooler temperature forecasts potentially curbing demand from electricity providers. Inventories are currently 4.7% above the 5-year seasonal average, and the EIA reported a larger-than-expected inventory build of +122 bcf for the week ending May 30, further contributing to the downward pressure on prices.

Analysis

July Nymex natural gas (NGN25) experienced a significant downturn, closing -3.94% lower at a 1-week low, primarily driven by evidence of abundant domestic supply and expectations of increased production. US natural gas inventories as of May 30 stood 4.7% above the 5-year seasonal average, further reinforced by a larger-than-anticipated EIA inventory build of +122 bcf for the week ending May 30, which surpassed both expectations (+113 bcf) and the 5-year average build (+98 bcf). The outlook for heightened US production is supported by a rise in active US natural gas rigs to a 15-month high of 114 rigs, as reported by Baker Hughes, and current Lower-48 state dry gas production at 105.6 bcf/day, a 3.4% year-over-year increase. Compounding the bearish sentiment are forecasts for cooler US temperatures on the East Coast from June 14-18, which are anticipated to reduce natural gas demand from electricity providers for air-conditioning; this is supported by a -1.8% year-over-year decline in US electricity output for the week ended May 31. While Lower-48 state gas demand was up 4.7% year-over-year on Monday and LNG net flows to US export terminals increased 2.7% week-over-week, these factors were insufficient to offset the prevailing supply-side pressures.

Key Decisions for Investors

• Given the current oversupply conditions, evidenced by inventories 4.7% above the 5-year average and a larger-than-expected EIA build, alongside rising production indicators such as increased active rigs, investors should anticipate continued near-term bearish pressure on US natural gas prices.
• It is crucial to monitor upcoming EIA weekly storage reports and short-term weather forecasts, as these will be significant catalysts for price movements and potential shifts in market sentiment.
• The rising trend in active drilling rigs, now at a 15-month high, suggests a potential for sustained or increased US natural gas production, which could cap price rallies unless offset by substantial and unexpected demand growth or supply disruptions.