Nat-Gas Prices Recover as US Weather Forecasts Turn Hotter

July Nymex natural gas (NGN26) on Wednesday rose +0.045 (+1.43%).

Nat-gas prices recovered from a 1.5-week low on Wednesday and settled higher as short covering emerged following forecasts for hotter US weather later this month.   Forecaster Vaisala on Wednesday said forecasts shifted warmer in the Midwest and above-normal for the eastern US for June 15-19, potentially boosting nat-gas demand from electricity providers to power increased air-conditioning usage. 

US (lower-48) dry gas production on Wednesday was 109.1 bcf/day (+1.8% y/y), according to BNEF. Lower-48 state gas demand on Wednesday was 72.6 bcf/day (+6.1% y/y), according to BNEF.  Estimated LNG net flows to US LNG export terminals on Wednesday were 18.6 bcf/day (+9.3% w/w), according to BNEF.

The outlook for the Strait of Hormuz to remain closed for the foreseeable future is supportive of nat-gas prices, as the closure has curbed Middle Eastern nat-gas exports, potentially boosting US nat-gas exports to offset the shortfall. 

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.

Projections for higher US nat-gas production are negative for prices.  On Tuesday, the EIA raised its forecast for 2026 US dry nat-gas production to 111.0 bcf/day from a May estimate of 110.6 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 on Wednesday reported that US (lower-48) electricity output in the week ended June 6 rose +2.13% y/y to 83,866 GWh (gigawatt hours), and US electricity output in the 52 weeks ending June 6 rose +2.25% y/y to 4,341,775 GWh.

The consensus is that Thursday’s weekly EIA nat-gas inventories will climb by +100 bcf.

Last Thursday’s weekly EIA report was bullish for nat-gas prices, as nat-gas inventories for the week ended May 29 rose by +95 bcf, below expectations of +99 bcf and the 5-year weekly average of +101 bcf.  As of May 29, nat-gas inventories were down -0.8% y/y, and +5.7% above their 5-year seasonal average, signaling adequate nat-gas supplies.  As of June 8, gas storage in Europe was 43% full, compared to the 5-year seasonal average of 57% 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 June 5 fell by -1 to 124 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.