Nat-Gas Gives up Early Gains on the Outlook for Higher EIA Inventories

Rich Asplund Barchart Wed May 21, 2:21PM CDT
Gas flame with blue reflection on dark backdrop by Bellanatella via iStock

June Nymex natural gas (NGM25) on Wednesday closed downy by -0.314 (+10.09%).

June nat-gas prices on Wednesday gave up an early advance and settled lower, giving back some of Tuesday's sharp gains.  Long liquidation pressures emerged in nat-gas futures on expectations that EIA nat-gas inventories will continue to build.  The consensus is that Thursday's EIA nat-gas inventories will climb by +119 bcf for the week ended May 16, well above the five-year average for this time of year of +87 bcf.  

Nat-gas prices Wednesday initially extended Tuesday's sharp gains on forecasts for warm weather that would boost nat-gas demand from electricity providers to run air conditioning.  On Wednesday, forecaster Atmospheric G2 said forecasts shifted warmer for the Northeast, South, and West for May 26-30, with temperatures well above normal for the central and Midwest.  

Lower-48 state dry gas production Wednesday was 105.5  bcf/day (+4.4% y/y), according to BNEF.  Lower-48 state gas demand Wednesday was 67.5 bcf/day (-3.8% y/y), according to BNEF.  LNG net flows to US LNG export terminals Wednesday were 14.8 bcf/day (+1.8% w/w), according to BNEF.

An increase in US electricity output is positive for nat-gas demand from utility providers.  The Edison Electric Institute reported Wednesday that total US (lower-48) electricity output in the week ended May 17 rose +2.5% y/y to 75,855 GWh (gigawatt hours), and US electricity output in the 52-week period ending May 17 rose +3.67% y/y to 4,253,433 GWh.

Last Thursday's weekly EIA report was bearish for nat-gas prices since nat-gas inventories for the week ended May 9 rose +110 bcf, right on expectations but well above the 5-year average build for this time of year of +83 bcf.  As of May 9, nat-gas inventories were down -14.6% y/y and +2.6% above their 5-year seasonal average, signaling adequate nat-gas supplies.  In Europe, gas storage was 45% full as of May 18, versus the 5-year seasonal average of 55% full for this time of year.

Baker Hughes reported last Friday that the number of active US nat-gas drilling rigs in the week ending May 16 fell -1 to 100 rigs, modestly above the 4-year low of 94 rigs posted on September 6, 2024.  Active rigs have fallen since posting a 5-1/2 year high of 166 rigs in Sep 2022, up from the pandemic-era record low of 68 rigs posted in July 2020 (data since 1987).
 


On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.