Nat-Gas Prices Slip as US Weather Forecasts Moderate

Natural gas futures edged lower Wednesday as forecasts for cooler temperatures across the central and eastern US tempered demand expectations, with Atmospheric G2 predicting cooler-than-normal conditions for June 9-13. Prices were further pressured by anticipated above-average builds in natural gas inventories; the consensus expects Thursday's EIA report to show a +110 bcf increase for the week ending May 30, exceeding the five-year average of +98 bcf. Lower-48 state dry gas production was up 2.2% year-over-year, while demand decreased by 5.6%.

Analysis

July Nymex natural gas futures (NGN25) registered a modest decline of 0.16%, closing down by $0.006, influenced by expectations of reduced demand and increased supply. Forecasts for cooler temperatures across the central and eastern US for June 9-13, as indicated by Atmospheric G2, are anticipated to lessen natural gas consumption for air conditioning. This sentiment is further pressured by market expectations of a +110 bcf build in the upcoming weekly EIA natural gas inventory report for the week ended May 30, which surpasses the five-year average increase of +98 bcf for this period. Fundamentally, the market faces headwinds from supply-side strength, with Lower-48 state dry gas production at 103.9 bcf/day, a 2.2% year-over-year increase. Conversely, demand indicators are soft, as Lower-48 state gas demand fell 5.6% year-over-year to 69.2 bcf/day, and net flows to US LNG export terminals declined 4.9% week-over-week to 13.3 bcf/day. A 1.8% year-over-year decrease in US electricity output for the week ending May 31 also points to lower gas burn from utilities. While natural gas inventories as of May 23 were 11.7% below the previous year's level, they remained 3.9% above their 5-year seasonal average, suggesting sufficient supply. A marginal increase of one active US natural gas drilling rig to 99, noted by Baker Hughes, while still near multi-year lows, does little to alter the immediate supply picture. European gas storage at 49% full, below its 5-year average of 60%, presents a different regional dynamic but its direct bearing on current Nymex pricing is not elaborated in the provided information.

Key Decisions for Investors

• Given the confluence of bearish catalysts including cooler near-term weather forecasts, anticipated above-average inventory builds, rising domestic production, and falling demand, investors should consider maintaining a cautious or bearish stance on July Nymex natural gas futures.
• The upcoming EIA weekly inventory report is a key event to monitor; a reported build significantly deviating from the +110 bcf consensus could trigger material price movements and offer trading opportunities.
• Investors should continue to track evolving short-term weather forecasts for key US consumption zones and LNG export flow data, as these factors are likely to remain primary drivers of price volatility in the near term.