Short covering sparks temporary upside but oversupply looms
Natural gas (NG=F) prices surged by nearly 8% to $3.63/mmBtu at the start of the week, largely fueled by aggressive fund short covering ahead of the May contract expiration. This came just days after prices had plunged to a five-month low, exposing the raw volatility in the current market. But while the rebound may have looked like a reversal signal, the broader context remains heavy: oversupply, weak power burn, and mild temperatures continue to define the backdrop.
LNG exports provide limited lift despite record flows
U.S. LNG exports hit 15.6 Bcf/day, rising 5.5% week-over-week, with demand from European and Asian buyers holding relatively steady. However, this increase has done little to offset persistent domestic oversupply. With Lower-48 dry gas production still running at 105.9 Bcf/day (up 6.8% year-over-year), the production pace continues to far exceed incremental demand. Moreover, LNG flows are still short of absorbing the glut in inventory.
Henry Hub prices near peak May levels, but historical context matters
Spot natural gas prices at the Henry Hub averaged $3.12/mmBtu in May, the highest May average since 2022. That’s a sharp recovery from the $2.12 May 2024 low, but still shy of the 5-year May average of $3.41. For the year, prices are averaging $3.80 so far, rebounding from the full-year 2024 average of just $2.19. The trend suggests recovery is in motion, but not strong enough to break the long-term range unless structural shifts occur.
EIA data highlights stubborn storage builds
The latest EIA report showed a +101 Bcf build for the week ending May 23—larger than both the +99 Bcf consensus and the +98 Bcf five-year average. Total inventories now sit at 2,476 Bcf, which is 316 Bcf below last year’s level but still 93 Bcf above the 5-year average. This persistent injection trend marks the fifth straight week of triple-digit builds, showcasing just how out-of-balance supply remains.
Demand fails to impress as power burn weakens
Total U.S. natural gas consumption fell from 98.1 Bcf/day to 97.3 Bcf/day, with a softening in power sector demand as weather conditions turned cooler across the Midwest and Texas. Year-over-year, U.S. electricity output dropped 4.4%, weakening gas burn for power generation. That, combined with muted industrial activity, continues to limit bullish momentum.
European storage recovery softens global urgency
Dutch TTF contracts—a key benchmark for European gas—have fluctuated due to high inventory levels and reduced urgency around Russian supply. As of late April, European storage was 38% full, trailing the 5-year seasonal average of 48%. Yet discussions around easing storage mandates and the fading likelihood of a full Russian gas ban have kept pressure on prices. Europe's lower-than-average fill rate still matters, but not enough to drive global tightness.
Rigs show mild pickup but activity remains subdued
According to Baker Hughes, U.S. active gas rigs rose by just +1 to 99 rigs for the week ending April 25. That’s barely off the 4-year low of 94 rigs, and far from the 166-rig peak in September 2022. Despite higher prices, producers remain disciplined, reluctant to flood the market further. That could change quickly if prices stay north of $3.50 for long—but for now, restraint remains.
Earnings momentum from top natural gas producers builds optimism
Expand Energy (EXE) is now the top natural gas producer following its merger with Chesapeake and Southwestern. Its holdings in Haynesville and Marcellus basins are leveraged to LNG export growth, AI-related power demand, and electrification trends. EXE's 2025 EPS is projected to jump +444.7% YoY, with analysts upgrading forecasts by +16.5% in just 60 days.
Gulfport Energy (GPOR), with over 90% gas exposure and leaner operations post-bankruptcy, is expected to grow EPS by +61.7% YoY in 2025. Its disciplined capex and Utica-focused production could outperform if gas prices climb into the $4.00 range this summer.
Antero Resources (AR) remains anchored in the Appalachian Basin, producing over 306 Bcfe last quarter, 60% of which was gas. With a 1,485.7% projected EPS increase for 2025, AR’s massive low-cost inventory could turn into a cash flow engine if prices rise just modestly.
Trump LNG policy shift could alter long-term pricing floor
President Trump’s decision to lift the Biden-era pause on LNG export permits opens the door for over a dozen pending U.S. liquefaction projects. That move could materially increase long-term LNG capacity and, in turn, offer structural support for domestic prices by creating a durable export floor. But project timelines are long—meaning this is a 2026+ catalyst, not a short-term rescue.
Technical outlook hinges on heat and storage shifts
While technicals show support building around $3.30/mmBtu, bulls will need sustained demand triggers to push prices toward the $4.00–$4.25 range. Seasonal weather patterns—especially June and July heatwaves—remain a wildcard. If electricity demand spikes and LNG flows remain elevated, prices could test those higher resistance levels. But without that spark, storage builds and muted consumption could drag prices back into the mid-$2 range.
Verdict: Buy on dips, but stay tactical
With natural gas (NG=F) trading at $3.63, upside from current levels depends entirely on near-term weather and mid-summer LNG activity. Long-term structural bullish cases exist—Trump LNG approvals, disciplined rig counts, and surging AI-driven power demand—but none will matter in the next six weeks without heat-driven consumption. The risk-reward favors a Buy on dips, but it’s not a hold-and-wait situation. If prices pull back to $3.30, risk-tolerant investors could step in for a tactical long setup aiming at $4.25+.
