Nat-Gas Prices Retreat on Expectations for US Storage Levels to Build

June Nymex natural gas (NGM26) on Wednesday closed down -0.110 (-3.53%).

Nat-gas prices on Wednesday fell from an 8-week nearest-future high and settled sharply lower.   Abundant US nat-gas supplies, along with expectations that storage levels will continue to build, pressured prices on Wednesday.  The consensus is that Thursday's weekly EIA nat-gas inventories will increase by +98 bcf for the week ended May 15, above the five-year average for the week of +92 bcf.  

Nat-gas prices initially moved higher on Wednesday amid an outlook for above-normal US temperatures, which may boost nat-gas demand to power increased air-conditioning use.  The Commodity Weather Group said Wednesday that forecasts shifted warmer, with above-average temperatures expected across the Upper Midwest from May 25-29.    

The outlook for the Strait of Hormuz to remain closed for the foreseeable future is supportive for nat-gas as the closure will curb Middle Eastern nat-gas supplies, potentially boosting US nat-gas exports to make up for the shortfall.  

Projections for higher US nat-gas production are negative for prices.  Last Tuesday, the EIA raised its forecast for 2026 US dry nat-gas production to 110.61 bcf/day from an April estimate of 109.60 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.

On April 17, nat-gas prices tumbled to a 1.5-year nearest-futures low amid robust US gas storage.  EIA nat-gas inventories as of May 8 were +6.5% above their 5-year seasonal average, signaling abundant US nat-gas supplies.  

US (lower-48) dry gas production on Wednesday was 109.3 bcf/day (+1.4% y/y), according to BNEF.  Lower-48 state gas demand on Wednesday was 73.0  bcf/day (+4.1% y/y), according to BNEF.  Estimated LNG net flows to US LNG export terminals on Wednesday were 18.1 bcf/day (+3.0% w/w), according to BNEF.

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.

As a positive factor for gas prices, the Edison Electric Institute reported Wednesday that US (lower-48) electricity output in the week ended May 16 rose +2.16% y/y to 77,491 GWh (gigawatt hours), and US electricity output in the 52 weeks ending May 16 rose +1.83% y/y to 4,331,062 GWh.

Last Thursday's weekly EIA report was neutral to slightly bullish for nat-gas prices, as nat-gas inventories for the week ended May 8 rose by +85 bcf, below expectations of +91 bcf, but above the 5-year weekly average of +84 bcf.  As of May 8, nat-gas inventories were up +1.6% y/y, and +6.5% above their 5-year seasonal average, signaling ample nat-gas supplies.  As of May 18, gas storage in Europe was 37% full, compared to the 5-year seasonal average of 50% 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 15 fell by -1 to 128 rigs, modestly below the 2.5-year high of 134 rigs set on February 27.  In the past 19 months, the number of gas rigs has risen from the 4.75-year low of 94 rigs reported in September 2024.