- U.S. natural gas futures came under significant pressure as the inventory increase exceeded expectations, with the May delivery of front-month natural gas futures on the New York Mercantile Exchange falling 3.7% to $2.62 per million British thermal units, marking the lowest closing price in a week.
- According to the U.S. Energy Information Administration, natural gas inventories increased by 103 billion cubic feet last week, significantly surpassing analysts' estimates of 94 billion cubic feet as well as the five-year average of 64 billion cubic feet.
- Constrained by pipeline export capacity bottlenecks, the spot price of natural gas at the Waha Hub in the Permian Basin recorded negative values for 54 consecutive days, reaching a historic high, with the daily average price since 2026 falling to negative $1.91.
With the mild weather following the heating season significantly reducing end-user heating demand, the U.S. natural gas market is facing a temporary mismatch in supply and demand fundamentals. Energy companies have injected significantly more gas into storage facilities during the off-season than the historical average for the same period. This excessive seasonal inventory build-up directly pressured the front-month futures contract prices, halting the six-day consecutive rally. Market participants are reassessing the inventory digestion cycle, and if temperatures continue to hover around the normal average in the coming weeks, with the cooling demand side unable to take over quickly, the marginal increase in inventories will further limit the upward potential of natural gas prices.
Supply-Demand Fundamentals and Production Adjustment
From the supply side, U.S. domestic natural gas producers are responding to the sluggish pricing environment. According to data tracked by the London Stock Exchange Group, the average natural gas production in the lower 48 states of the U.S. has shown a marginal decline, from 110.4 billion cubic feet per day in March to 110.3 billion cubic feet per day so far in April, recently hitting a phase low of 108.3 billion cubic feet per day. However, this slight production cut is not enough to offset the weak demand. On the demand side, including exports, the average daily consumption is expected to drop to 100.5 billion cubic feet per day next week. This persistent supply-demand gap is the core driver accelerating the conversion of excess capacity into inventory.
Regional Basis and Infrastructure Bottlenecks
The price anomaly at the Waha Hub in West Texas is currently the most watched structural distortion in the North American energy market. As the core hub of the largest oil-producing shale basin in the U.S., the Permian, the spot price at Waha Hub has been trapped in a negative range for 54 consecutive days. This extreme pricing not only reflects the high associated gas production but also highlights severe lags in midstream pipeline transportation infrastructure. Due to insufficient outbound routes to transport natural gas to consumer and export centers along the Gulf Coast, producers are forced to subsidize shipping costs to relieve pipeline pressure. If related pipeline expansion projects fail to commence as scheduled, this regional negative basis phenomenon may become normalized over the coming quarters.
LNG Export Increases and Global Pricing
Against the backdrop of domestic market pressure, liquefied natural gas (LNG) exports continue to play a crucial role as a pressure relief valve. The feed gas intake volume at the nine major U.S. LNG export facilities climbed to 18.9 billion cubic feet per day in April, surpassing previous historical highs. More critically, the Golden Pass LNG terminal, jointly developed by Exxon Mobil and Qatar Energy, has begun loading its first shipments, indicating that new U.S. export capacity is gradually being released. If the global LNG spot market can smoothly absorb these new supplies, the robust pull from the export side is expected to provide a solid bottom support for the U.S. domestic benchmark gas prices in the second half of the year.
Forward Curve and Seasonal Pricing Expectations
Subject to the current high inventory levels, the forward curve structure of NYMEX natural gas futures is undergoing repricing. Although front-month contracts have weakened significantly due to spot oversupply, taking into account the potential peak in gas for power generation during summer heat and the rigid demand during the winter heating season, the market still retains some premium expectations for forward contracts. Traders are currently closely monitoring the medium- to long-term forecasts of weather models. If extreme El Niño or La Niña events occur subsequently, leading to abnormal weather, the current inventory surplus could be rapidly consumed in a very short period, causing significant volatility in far-month contracts.
