June Nymex natural gas (NGM26) futures closed up +0.021 (+0.74%) on Wednesday, as market participants reacted to forecasts of above-normal temperatures across key regions of the United States. This anticipated warmer weather is expected to significantly boost natural gas demand from electricity providers, who will need to power increased air-conditioning usage.
The Commodity Weather Group reported Wednesday that forecasts have shifted warmer, with above-average temperatures projected across the Midwest and Southwest through May 17. This outlook directly impacts the demand side of the natural gas market, as residential and commercial sectors ramp up cooling efforts. Data from the Edison Electric Institute further underscored this trend, reporting that US (lower-48) electricity output in the week ended May 9 rose +2.2% year-over-year to 74,355 GWh (gigawatt hours). Over the 52 weeks ending May 9, US electricity output increased +1.8% year-over-year to 4,329,426 GWh. According to BNEF, lower-48 state gas demand on Wednesday was 67.8 bcf/day, marking a +6.0% increase year-over-year, reflecting the immediate impact of rising temperatures.
Domestic Supply Dynamics and Inventories
Despite the immediate demand-side pressures, the domestic supply landscape presents a more complex picture. Projections for higher US natural gas production typically exert negative pressure on prices. The EIA, for instance, raised its forecast for 2026 US dry natural gas production to 110.61 bcf/day from an April estimate of 109.60 bcf/day. US natural gas production is currently near a record high, with active US natural gas rigs posting a 2.5-year high in late February. BNEF data on Wednesday indicated US (lower-48) dry gas production at 109.8 bcf/day, a +3.1% increase year-over-year.
Recent inventory reports also highlight robust supply levels. On April 17, natural gas prices tumbled to a 1.5-year nearest-futures low amid abundant US gas storage. EIA natural gas inventories as of April 24 were +7.7% above their 5-year seasonal average, signaling ample US natural gas supplies. The consensus for Thursday’s EIA natural gas inventories was an increase of +91 bcf for the week ended May 8, which is above the five-year average for this time of year of +84 bcf. However, last Thursday’s weekly EIA report was considered bullish for natural gas prices, as inventories for the week ended May 1 rose by +63 bcf, falling below expectations of +72 bcf and the 5-year weekly average of +77 bcf. As of May 1, natural gas inventories were up +2.8% year-over-year and +6.7% above their 5-year seasonal average.
In terms of drilling activity, Baker Hughes reported last Friday that the number of active US natural gas drilling rigs in the week ending May 8 fell by -1 to 129 rigs. This figure is modestly below the 2.5-year high of 134 rigs set on February 27, though the number of gas rigs has generally risen from a 4.75-year low of 94 rigs reported in September 2024.
Global Market Tensions Provide Medium-Term Support
Beyond domestic factors, global market dynamics are providing medium-term support for natural gas prices, particularly for US exports. The outlook for the Strait of Hormuz to remain closed for the foreseeable future is supportive for natural gas, as such a closure would curb Middle Eastern natural gas supplies. This could potentially boost US natural gas exports to make up for the shortfall in global markets. Estimated LNG net flows to US LNG export terminals on Wednesday were 17.3 bcf/day, a -1.9% week-over-week decrease, according to BNEF.
Further exacerbating global supply concerns, Qatar reported on March 19 “extensive damage” at the world’s largest natural gas export plant at Ras Laffan Industrial City. The attacks by Iran reportedly damaged 17% of Ras Laffan’s LNG export capacity, with repairs estimated to take three to five years. Given that the Ras Laffan plant accounts for approximately 20% of global liquefied natural gas supply, a significant reduction in its capacity could substantially boost demand for US natural gas exports. The closure of the Strait of Hormuz, attributed to the ongoing conflict in Iran, has already sharply curtailed natural gas supplies to Europe and Asia. This global tightness is reflected in European gas storage levels, which as of May 9, stood at 35% full, compared to the 5-year seasonal average of 47% full for this time of year, indicating a potential need for increased imports.
The recent uptick in US natural gas futures underscores a market grappling with a confluence of factors. While robust domestic production and ample storage levels continue to provide a foundational supply, the immediate surge in demand driven by warmer weather forecasts is a potent short-term driver. This is further complicated by significant global supply disruptions, which are expected to bolster the role of US natural gas exports in the medium term, creating a dynamic environment for price discovery.
