Gas Prices Edge up as Storage Build Falls Short of Forecasts

Natural gas prices settled higher on Thursday after the US Energy Information Administration reported that dry gas inventories increased by 44 billion cubic feet for the week ended September 11. This build was smaller than the 48 bcf expected by market participants, creating a mild supply deficit that supported prices. The October Nymex natural gas contract closed up 0.010, or 0.35%, reflecting this initial positive reaction to the storage data.

However, the advance was partially reversed as weather forecasts shifted toward cooler conditions in the US South and Southeast. The Commodity Weather Group indicated that above-average temperatures covering a smaller area from late September through early October would reduce electricity demand for air conditioning. This cooling trend acts as a headwind for gas consumption, offsetting the bullish signal from the lower-than-expected inventory build.

Production and Demand Data Show Growth

Underlying supply and demand metrics from BNEF indicate robust market activity. US lower-48 dry gas production reached 113.2 bcf/day on Thursday, a 5.0% increase year-over-year. Concurrently, state-level gas demand rose 3.8% year-over-year to 77.0 bcf/day. These figures suggest that while production is expanding, consumption is also growing, maintaining a balanced market dynamic despite the seasonal inventory accumulation.

LNG export flows presented a mixed picture, with estimated net flows to US terminals at 18.7 bcf/day, down 4.1% week-over-week. This decline in export activity may be influenced by global price differentials or logistical adjustments. Meanwhile, the Edison Electric Institute reported that US electricity output for the week ended September 12 rose 16.1% year-over-year to 94,427 GWh, highlighting a significant increase in power generation that likely correlates with higher gas burn for electricity.

European Supply Crisis Supports US Prices

External factors provided additional support to US gas prices, driven by a surge in European natural gas costs. European gas prices hit a 3.75-year high on Monday due to sharply reduced supplies from the Middle East. The closure of the Strait of Hormuz, resulting from the US-Iran conflict, has kept European storage levels well below normal. This supply constraint in Europe creates a bullish carryover effect for US gas markets, as global arbitrage opportunities favor higher prices for US-exportable gas.

Long-Term Outlook Faces Bearish Pressures

Medium-term outlook remains cautious due to weather and production expectations. A potential Super El Niño event is expected to bring warmer-than-normal temperatures to the Northern Hemisphere during the upcoming fall and winter, which would reduce heating demand for natural gas. Additionally, the EIA projects that US storage levels will swell to 3,985 bcf by the end of October, marking the highest level in a decade and 5% above the five-year average. The agency also raised its 2027 dry gas production estimate to 116.0 bcf/day, signaling continued supply growth that could pressure prices in the longer term.