Nat-Gas Prices Finish Sharply Higher as Oversupply Fears Ease

Rich Asplund - Barchart - Fri May 17, 2:24PM CDT

June Nymex natural gas (NGM24) on Friday closed up +0.131 (+5.25%).

June nat-gas prices on Friday extended this week's rally to a new 3-3/4 month nearest-futures high. Nat-gas prices rallied Friday on carryover support from Thursday when the EIA reported that weekly nat-gas inventories rose less than expected. That helps to ease concerns about oversupply heading into the summer months.

Lower-48 state dry gas production Friday was 99.4 bcf/day (-1.5% y/y), according to BNEF. Lower-48 state gas demand Friday was 65.5 bcf/day (-4.0% y/y), according to BNEF. LNG net flows to US LNG export terminals Friday were 13.2 bcf/day (-0.3% w/w), according to BNEF.

Nat-gas prices have rebounded higher from the 3-3/4 year nearest-futures low (NGK24) posted on April 26. Nat-gas prices collapsed over the winter after unusually mild winter temperatures curbed heating demand for nat-gas and pushed inventories well above average.

Nat-gas prices were under pressure after the Freeport LNG nat-gas export terminal in Texas on March 1 shut down one of its three production units due to damage from extreme cold in Texas. The unit recently reopened on a partial basis. However, Freeport said that once the production unit is fully reopened, the other two units will be taken down for maintenance, and all three units will not return online until late May. The lack of full capacity of the Freeport export terminal limits US nat-gas exports and boosts US nat-gas inventories.

An increase in US electricity output is positive for nat-gas demand from utility providers. The Edison Electric Institute reported Wednesday that total US electricity output in the week ended May 11 rose +2.08% y/y to 74,842 GWh (gigawatt hours), and cumulative US electricity output in the 52-week period ending May 11 rose +0.09% y/y to 4,102,951 GWh.

Thursday's weekly EIA report was bullish for nat-gas prices since nat-gas inventories for the week ended May 10 rose by +70 bcf, below expectations of +76 bcf and below the 5-year average build for this time of year of +90 bcf. As of May 10, nat-gas inventories were up +17.5% y/y and were +30.8% above their 5-year seasonal average, signaling ample nat-gas supplies. In Europe, gas storage was 64% full as of May 13, above the 5-year seasonal average of 51% full for this time of year.

Baker Hughes reported Friday that the number of active US nat-gas drilling rigs in the week ending May 17 was unchanged at 103 rigs, just above the 2-1/2 year low of 102 rigs posted in the week ending May 3. Active rigs have fallen since climbing to a 4-1/2 year high of 166 rigs in Sep 2022 from the pandemic-era 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.