Andreas Anastasiadis
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Natural gas futures gained ground as traders reacted to the latest EIA report, which indicated that working gas in storage increased by 79 Bcf from the previous week, compared to an analyst consensus of +87 Bcf. Despite the mid-week gains in Wednesday’s session, NYMEX natural gas futures retracted from a 3-1/2 month high as traders engaged in profit-taking, ultimately closing the day with moderate losses. The fading rally underscores the market’s sensitivity to supply dynamics, where even significant production cuts have struggled to sustain bullish momentum. The number of active US natural gas drilling rigs dropped to a 2.5-year low, totaling at 102, down 3 from the previous week (April 26, 2024), signaling a near-term reduction in production. However, the substantial existing inventories, exacerbated by a mild winter and operational adjustments at major facilities like the Freeport LNG export terminal, have capped price gains. Freeport’s partial reopening after a cold damage-induced shutdown adds another layer of complexity, with full capacity not expected until late May. |
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Figure 1: NYMEX LNG front-month contracts, US natural gas storage, yearly change |
| Output has declined by approximately 2.3 billion cubic feet per day over the past six days, reaching a preliminary 16-week low of 95.5 bcfd. Coinciding with this, gas flows to LNG export plant in Freeport are anticipated to reach a 16-week peak of 1.7 bcfd, a significant increase from the 1.3 bcfd average of the past week and the 0.4 bcfd recorded in April.
Despite production challenges, demand indicators show mixed signals. US electricity output increased last week, suggesting a rise in natural gas usage by utilities. Yet, the broader electricity output over the past year indicates a nearly flat trend, hinting at an uncertain trajectory for sustained demand growth. |