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Natural Gas Slumps as US Supplies Climb, Rig Count Dips

May 21, 2020 at 16:02 by Andrew Moran

Natural gas futures are slumping on Thursday after the US government reported that domestic inventories climbed. This is terrible news for an industry that is facing a record decline in global demand, and analysts say the decline in production may not be enough to rebalance the market. How low could natural gas go?

June natural gas futures tumbled $0.046, or 2.6%, to $1.725 per million British thermal units (btu) at 15:39 GMT on Thursday on the New York Mercantile Exchange. The energy commodity has had a decent week, advancing about 3%. However, year-to-date, prices are down nearly 21%.

According to the US Energy Information Administration (EIA), domestic stockpiles of natural gas increased by 81 billion cubic feet for the week ending May 15. In total, inventories stand at 2.503 trillion cubic feet, up 779 billion cubic feet from the same time a year ago. They are also 407 billion cubic feet above the five-year average.

New data show that crude oil and natural gas drilling activity is at a 33-low. The Baker Hughes natural gas rig count fell by one to 79 in the week ending May 12. The total oil and natural gas rig count plunged by 56% to 433 in the week ending May 12.

The industry has been reeling since the International Energy Agency (IEA) said that global demand is on track to crater by 5% this year amid the coronavirus pandemic. This would be the biggest drop since natural gas become a popular form of energy in the second half of the 20th century.

Weather forecasts are also doing little to stimulate demand and raise prices. Cool temperature patterns are prevalent throughout the US, and the key regions with 90-degree weather are not getting hot enough to spark demand. The latest outlooks suggest that the US may not see a significant heatwave until the beginning of next month – at the earliest.

Overall, for natural gas to return to a three-week high, there will need to be substantial output cuts.

In other energy markets, July West Texas Intermediate (WTI) crude futures added $0.28, or 0.84%, to $33.74 per barrel. July Brent crude futures picked up $0.36, or 1.01%, to $36.11 a barrel. July gasoline futures were flat at $1.0424 per gallon. July heating oil futures were also flat at $1.0396 per gallon.

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