Natural Gas Prices Surge Due to Smaller-Than-Anticipated Storage Addition
In the energy market, natural gas prices have shown resilience despite cooler weather forecasts and increased production. On Thursday, August Nymex natural gas prices inched up, with August Nymex natural gas (NGQ25) closing up +0.017 (+0.55%).
The U.S. Energy Information Administration (EIA) reported that nat-gas inventories for the week ended July 18 rose +23 bcf, slightly below the consensus of +27 bcf. Despite this, the inventory levels were still +5.9% above their 5-year seasonal average.
The increased production is evident in the Lower-48 state dry gas production, which stood at 107.1 bcf/day, a 2.9% year-over-year increase. However, the demand for natural gas remains relatively stable, with a slight 0.1% year-over-year increase to 82.4 bcf/day.
The steady LNG export volumes have supported prices, as the U.S. continues to be a major LNG exporter. The global energy landscape, including record energy consumption and growth in demand from sectors like AI and digital infrastructure, could support natural gas prices over the long term.
However, short-term price movements might be more influenced by immediate supply and demand factors. For instance, the outlook for cooler US weather has limited gains in nat-gas prices. Temperatures are forecast to return to near-normal levels in the western half of the US for August 3-7, potentially easing demand for natural gas.
The number of active US nat-gas drilling rigs has also been on the rise. In the week ending July 18, the number of active US nat-gas drilling rigs rose by +9 to a 17-month high of 117 rigs. This increase in drilling activity could contribute to future supply and potentially influence prices.
Despite the moderate gains in August Nymex natural gas prices, concerns about long-term supply-demand imbalances might have shifted the market sentiment. The U.S. natural gas market faces potential structural imbalances, with future growth contingent on accessing less economically viable resources, which could lead to price increases.
It's worth noting that as of July 18, nat-gas inventories were down -4.8% year-over-year. This trend, coupled with the potential for future storage builds and the impact on prices, could continue to influence the natural gas market.
As always, it's important to remember that market dynamics are complex and subject to numerous factors. Rich Asplund, who did not have positions in any of the securities mentioned in this article, emphasises the importance of conducting thorough research and considering multiple perspectives when making investment decisions.
Vaisala stated that the current hot temperatures in the eastern half of the US are expected to dissipate next week, which could further affect the demand for natural gas. The EIA will release its next weekly inventory report on Thursday, providing valuable insights into the current state of the natural gas market.
Investors in the energy industry may find prospects in the natural gas market, given the resilience of prices despite increased production and cooler weather forecasts. Future price movements could be influenced not only by short-term supply and demand factors but also by long-term developments such as the potential for structural imbalances and growth in demand from sectors like AI and digital infrastructure.
