Abundant US Nat-Gas Supplies Pressure Prices

October Nymex natural gas (NGV26) on Tuesday closed down -0.059 (-1.98%).

Nat-gas prices gave up an early advance on Tuesday and settled lower as US domestic supplies remain well above average.  As of August 28, US nat-gas inventories were +5.2% above their 5-year seasonal average, indicating abundant supplies. 

Nat-gas prices initially moved higher on Tuesday amid forecasts for hotter US weather, potentially boosting nat-gas demand from electricity providers as air-conditioning use increases. According to the Commodity Weather Group, forecasts have shifted to hotter, with above-average temperatures expected across the US South through September 17.

Nat-gas prices also had some early carryover support on Tuesday from a rally in European nat-gas prices to a 3.5-year high.  European nat-gas is soaring as sharply reduced supplies from the Middle East due to the closure of the Strait of Hormuz from the US-Iran war are keeping European nat-gas storage levels well below normal, a bullish factor ahead of winter, when demand typically surges. 

US (lower-48) dry gas production on Tuesday was 113.9 bcf/day (+4.2% y/y), according to BNEF.  Lower-48 state gas demand on Tuesday was 76.1 bcf/day (+12.3% y/y), according to BNEF.  Estimated LNG net flows to US LNG export terminals on Tuesday were 19.8 bcf/day (+1.9% w/w), according to BNEF.

As a positive factor for gas prices, the Edison Electric Institute reported last Wednesday that US (lower-48) electricity output in the week ended August 29 rose +12.56% y/y to 96,357 GWh (gigawatt hours).  Also, US electricity output in the 52 weeks ending August 29 rose +2.63% y/y to 4,375,966 GWh.

As a bearish factor, the US Energy Information Administration (EIA) on August 11 projected that US nat-gas storage levels will swell to 3,985 bcf at the end of October, the highest level in 10 years and 5% above the five-year average.  Last Monday, the EIA raised its 2027 US dry natural gas production estimate to 116.0 bcf/day from 115.3 bcf/day projected in July.

A bearish medium-term factor for nat-gas prices is speculation that a powerful El Niño weather system will bring warmer-than-normal temperatures to the Northern Hemisphere this fall and winter, reducing nat-gas heating demand. 

Last Thursday's weekly EIA report supported nat-gas prices, showing a +30 bcf increase in US nat-gas inventories for the week ended August 28, below expectations of +33 bcf and below the 5-year weekly average of +37 bcf.  As of August 28, nat-gas inventories were down -1.8% y/y and +5.2% above their 5-year seasonal average, signaling adequate nat-gas supplies.  As of September 6, gas storage in Europe was 67% full, compared to the 5-year seasonal average of 83% full for this time of year.

Baker Hughes reported last Friday that the number of active US nat-gas drilling rigs in the week ended September 4 fell by -2 to 130 rigs, just below the 3-year high of 134 rigs set in February 2026.

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.