European gas storage has shown only a slight influence on US benchmarks, averaging around 45% against a five-year average of 56%. Global indicators suggest that supply is adequately balancing out as summer approaches.
The imbalance between cash market and rig count signals remains strong while production stays robust
On Friday, dry gas production hit an average of 107 billion cubic feet per day, marking a 4.7% increase from last year. This steady supply is persistently exerting pressure, even as regional limitations are noticed. Spot prices in the Permian Basin turned negative, a sign of infrastructure issues and local oversupply.
In addition, Baker Hughes reported a slight decline in active U.S. gas-oriented rigs, dropping from 100 to 98 last week, indicating a minor slowdown. However, production continues to outpace demand, which could hamper immediate bullish sentiments, especially with fewer rigs in operation.
Electricity demand will recover, but weather will still limit potential
A recent warmer outlook from NOAA, covering the period from May 28 to June 1, led to speculation about increased cooling demand, as was noted on Friday. The Edison Electric Institute reported a 2.5% year-on-year increase in electricity production for the week ending May 17, fueling expectations for greater reliance on gas-fired power generation.
That said, the prevailing weather patterns across the nation lean bearish. Eastern and midwestern regions are experiencing below-average temperatures, with highs typically in the 50s and 70s. Although areas in the west and south are sweltering, increased solar energy usage is somewhat diminishing gas demand from the power sector.
Outlook: Bear pressure persists as storage builds and demand disappoints
The near-term outlook is decidedly bearish. Storage injections are consistently surpassing seasonal averages, with production levels still above 107 billion cubic feet per day. Even with a slight uptick in electricity demand and a warmer trend expected in early June, overall consumption remains weak, particularly with mild temperatures restricting electricity use in key demand areas.
