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Nat-Gas Prices Advance on a Broad Rally in Risk Assets

Barchart - Fri Jun 2, 2:16PM CDT

July Nymex natural gas (NGN23) on Friday closed up +0.014 (+0.65%).

July nat-gas Friday closed moderately higher.  The Senate's passage late Thursday of a debt ceiling suspension sparked a rally today in risk assets, including nat-gas.  However, gains in nat-gas were limited by the outlook for mild U.S. temperatures, which would curb nat-gas demand from electricity providers to power air conditioning.  Forecaster Atmospheric G2 said mild temperatures are expected across most of the eastern and southern U.S. at least through mid-June.

Nat-gas prices fell sharply starting in December and posted a 2-3/4 year nearest-futures low (NGK23) Apr 14 as abnormally mild weather across the northern hemisphere this past winter eroded heating demand for nat-gas.  January was the sixth-warmest across the contiguous 48 U.S. states in data from 1895.  This winter's warm temperatures have caused rising nat-gas inventories in Europe and the United States.  Gas storage across Europe was 68% full as of May 28, well above the 5-year seasonal average of 50% full for this time of year.  Nat-gas inventories in the U.S. were +16.6% above their 5-year seasonal average as of May 26.

Lower-48 state dry gas production on Friday was 99.7 bcf (+2.3% y/y), just below the record high of 101.7 bcf posted on Apr 23, according to BNEF.  Lower-48 state gas demand Friday was 66 bcf/day, down -0.4% y/y, according to BNEF.  On Friday, LNG net flows to U.S. LNG export terminals were 12.4 bcf, down -4.1% w/w.  On Apr 16, LNG net flows to U.S. LNG export terminals rose to a record 14.9 bcf/day as nat-gas exports continue to increase from the Freeport LNG terminal as the terminal was partially reopened after being closed since last June because of an explosion.

A decline in U.S. electricity output is bearish for nat-gas demand from utility providers.  The Edison Electric Institute reported Thursday that total U.S. electricity output in the week ended May 27 fell -4.1% y/y to 72,230 GWh (gigawatt hours).  Also, cumulative U.S. electricity output in the 52-week period ending May 27 was unchanged y/y to 4,090,396 GWh.

Thursday's weekly EIA report was bearish for nat-gas prices since it showed U.S. nat gas inventories rose +110 bcf, above expectations of +107 bcf and above the five-year average for this time of year at 101 bcf.  Nat-gas inventories as of May 26 are +16.6% above their 5-year seasonal average.

Baker Hughes reported Friday that the number of active U.S. nat-gas drilling rigs in the week ended June 2 was unchanged at a 14-month low of 137 rigs, moderately below the 3-1/4 year high of 166 rigs posted in the week ended Sep 9.  Active rigs have more than doubled from the record low of 68 rigs posted in July 2020 (data since 1987).

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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.

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