Nat-Gas Prices Surge as Storage Tightens and US Weather Turns Hotter

July Nymex natural gas (NGN26) on Thursday closed up +0.190 (+6.14%).

Nat-gas prices rallied to a 2.5-month nearest-futures high on Thursday and settled sharply higher on a smaller-than-expected weekly storage increase.  EIA nat-gas inventories rose +92 bcf in the week ended May 22, below expectations of +96 bcf.  Nat-gas prices added to their gains after updated weather forecasts turned hotter, potentially boosting nat-gas demand from electricity providers to power increased air-conditioning usage.  The Commodity Weather Group said Thursday that above-average temperatures are expected across the West and Midwest from June 2-11.  

Projections for higher US nat-gas production are negative for prices.  On May 12, 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.  

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.  

US (lower-48) dry gas production on Thursday was 110.4 bcf/day (+2.6% y/y), according to BNEF.  Lower-48 state gas demand on Thursday was 70.2 bcf/day (+2.1% y/y), according to BNEF.  Estimated LNG net flows to US LNG export terminals on Thursday were 18.5 bcf/day (+2.2% 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 Thursday that US (lower-48) electricity output in the week ended May 23 rose +5.2% y/y to 81,890 GWh (gigawatt hours), and US electricity output in the 52 weeks ending May 23 rose +2.0% y/y to 4,335,116 GWh.

Thursday's weekly EIA report was bullish for nat-gas prices, as nat-gas inventories for the week ended May 2 rose by +92 bcf, below expectations of +96 bcf and the 5-year weekly average of +97 bcf.  As of May 22, nat-gas inventories were up +0.3% y/y, and +6.2% above their 5-year seasonal average, signaling ample nat-gas supplies.  As of May 26, gas storage in Europe was 39% full, compared to the 5-year seasonal average of 53% 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 22 fell by -3 to 125 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.