Nat-Gas Prices Recover as US Weather Forecasts Cool

May Nymex natural gas (NGK26) on Tuesday closed up +0.059 (+2.10%).

Nat-gas prices recovered from a 7.5-month nearest-futures low on Tuesday and settled sharply higher.  Short covering emerged in nat-gas futures on Tuesday due to a cold shift in US weather forecasts, potentially boosting nat-gas heating demand.  The Commodity Weather Group said Tuesday that forecasts shifted colder, though above-average temperatures are still expected across the eastern half of the US from April 12-16.

Nat-gas prices have some medium-term support on the outlook for tighter global LNG supplies.  On March 19, Qatar reported "extensive damage" at the world's largest natural gas export plant at Ras Laffan Industrial City.   Qatar said the attacks by Iran damaged 17% of Ras Laffan's LNG export capacity,  a damage that will take three to five years to repair.   The Ras Laffan plant accounts for about 20% of global liquefied natural gas supply, and a reduction in its capacity could boost US nat-gas exports.  Also, the closure of the Strait of Hormuz due to the war in Iran has sharply curtailed nat-gas supplies to Europe and Asia.

US (lower-48) dry gas production on Tuesday was 109.2 bcf/day (+1.7% y/y), according to BNEF.  Lower-48 state gas demand on Tuesday was 78.9 bcf/day (-6.5% y/y), according to BNEF.  Estimated LNG net flows to US LNG export terminals on Tuesday were 18.7 bcf/day (-3.2% w/w), according to BNEF.

Projections for higher US nat-gas production are bearish for prices.  On Tuesday, the EIA raised its forecast for 2026 US dry nat-gas production to 109.59 bcf/day from a March estimate of 109.49 bcf/day.  US nat-gas production is currently near a record high, with active US nat-gas rigs posting a 2.5-year high in late February.

As a positive factor for gas prices, the Edison Electric Institute reported last Wednesday that US (lower-48) electricity output in the week ended March 28 rose +5.7% y/y to 76,162 GWh (gigawatt hours).  Also, US electricity output in the 52 weeks ending March 28 rose +1.9% y/y to 4,321,501 GWh.

Last Thursday's weekly EIA report was bearish for nat-gas prices, as nat-gas inventories for the week ended March 27 rose by +36 bcf, right on expectations but well above the 5-year weekly average draw of -4 bcf.  As of March 27, nat-gas inventories were up +5.2% y/y, and +3.0% above their 5-year seasonal average, signaling ample nat-gas supplies.  As of April 5, gas storage in Europe was 28% full, compared to the 5-year seasonal average of 41% full for this time of year.

Baker Hughes reported last Thursday that the number of active US nat-gas drilling rigs in the week ending April 3 rose by +3 to 130, modestly below the 2.5-year high of 134 rigs from February 27.  In the past 17 months, the number of gas rigs has risen from the 4.75-year low of 94 rigs reported in September 2024.