Natural Gas Prices Show Declines Amid Economic Concerns and Weather Variability
On Friday, May natural gas futures saw a decrease, closing down by 0.030, which is a decline of 0.84%. This downturn in natural gas prices reflects growing worries regarding the escalating trade tensions between the United States and China. China’s recent decision to raise tariffs on American goods to 125%, up from 84%, is a significant retaliation against the U.S.’s increase of tariffs on Chinese products to 145%. Such trade disruptions could hinder global trade and ultimately reduce demand for U.S. natural gas supplies.
In addition to trade concerns, a fluctuating U.S. weather forecast has contributed to a reduction in heating demand for natural gas, putting further downward pressure on prices. The Commodity Weather Group indicated a shift toward above-average temperatures in the western part of the U.S., while seasonal temperatures are expected to dominate in the Midwest and East from April 16-20.
Last month, natural gas prices reached a two-year peak, largely due to indications that U.S. natural gas storage levels might remain tight as the summer air conditioning season approaches. BloombergNEF has projected that U.S. gas storage will be around 10% lower than the five-year average this summer, which could lead to higher prices if demand spikes.
On Friday, the output of dry natural gas in the lower-48 states was reported at 106.2 billion cubic feet per day (bcf/day), marking a year-on-year increase of 4.7%. Simultaneously, gas demand in these states reached 76.7 bcf/day, an impressive rise of 11.4% compared to the same time last year. There was also a notable influx of liquefied natural gas (LNG) net flows to U.S. LNG export terminals, hitting 16.3 bcf/day, reflecting a weekly increase of 9.1%.
The increase in electricity generation in the U.S. provides a positive outlook for natural gas demand from utility companies. According to the Edison Electric Institute, total electricity output for the lower-48 states in the first week of April climbed by 4.05% year on year, reaching 74,475 gigawatt hours (GWh). Furthermore, electricity output over the 52-week period ending on April 5 was 3.64% higher, totaling 4,243,287 GWh.
Looking at the longer-term prospects for natural gas prices, recent developments have raised optimism. The Biden administration’s previous freeze on approving gas export projects was lifted by President Trump in January, leading to a reevaluation of a backlog of nearly a dozen LNG export applications. This expansion of LNG export capacity has the potential to boost demand for U.S. natural gas, which could, in turn, support prices in the market.
However, the latest weekly EIA report presented slightly bearish news for natural gas prices. It revealed that the natural gas inventories grew by 57 bcf for the week ending April 4, close to the expected 58 bcf but significantly exceeding the five-year average of a 17 bcf build for this period. Current storage levels show a decrease of 19.8% year-on-year and are 2.1% below the five-year average, indicating tight supply conditions for natural gas.
In Europe, gas storage levels were at 35% of capacity as of April 7, a notable drop compared to the five-year average of 46% for this season. This discrepancy could influence international pricing and demand dynamics for natural gas.
Additionally, Baker Hughes reported an increase in the number of active natural gas drilling rigs in the U.S., which rose by 1 to reach 97 rigs during the week ending April 11. This figure is modestly higher than the 3.5-year low of 94 rigs recorded on September 6, 2024. The number of active rigs has seen a decline from a five-year high of 166 rigs in September 2022 and is still significantly above the record low of 68 rigs from the onset of the pandemic in July 2020.
As the market navigates these shifting dynamics—from trade relationships to weather conditions and inventory levels—stakeholders in the natural gas sector are keeping a watchful eye on developments that could impact pricing and demand trends moving forward.
