Nat-Gas Rallies on a Lower-Than-Expected Build in Weekly Inventories

Rich Asplund - Barchart - Thu May 16, 2:18PM CDT

June Nymex natural gas (NGM24) on Thursday closed up +0.079 (+3.27%).

June nat-gas prices on Thursday rallied to a 3-3/4 month nearest-futures high after weekly nat-gas supplies rose less than expected. On Thursday, the EIA reported that nat-gas inventories for the week ended May 10 rose +70 bcf, below expectations of +76 bcf. Nat-gas fell back from its best levels Thursday after the Commodity Weather Group said forecasts shifted cooler for much of the eastern half of the US, including Texas, for May 21-25, which should curb nat-gas demand from electricity providers to power air-conditioning usage.

Lower-48 state dry gas production Thursday was 98.3 bcf/day (-2.1% y/y), according to BNEF. Lower-48 state gas demand Thursday was 64.4 bcf/day (-2.7% y/y), according to BNEF. LNG net flows to US LNG export terminals Thursday were 13.2 bcf/day (+4.0% 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 last Friday that the number of active US nat-gas drilling rigs in the week ending May 10 rose by +1 rig to 103 rigs, slightly 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.