U.S. Natural Gas Prices Decline Amid Storage Surplus and Mild Weather

The U.S. natural gas market faced downward pressure on May 7, 2025, as a combination of rising storage inventories, milder-than-expected weather, and trade-related uncertainties outweighed short-term supply constraints. The Henry Hub futures price for May 2025 closed at $3.247/MMBtu, down 57 cents from the prior week, marking a notable shift in market sentiment toward oversupply risks.

Key Drivers of the Decline

1. Storage Surpluses Signal Oversupply

The Energy Information Administration (EIA) reported that U.S. natural gas storage levels stood at 2,041 billion cubic feet (Bcf) as of April 25, 2025—a 107 Bcf increase from the prior week. This injection exceeded the five-year average of 58 Bcf, signaling a buildup in storage capacity. While inventories remained 17.57% below 2024 levels due to winter withdrawals and strong LNG demand, the April data hinted at a supply glut forming earlier than anticipated.

The EIA projected that injections would continue to outpace historical averages early in the injection season, raising concerns about surplus supplies by summer. Analysts warned that this could test prices further, especially if demand growth fails to keep pace.

2. Mild Weather Reduces Heating Demand

Mild weather in March and early May curtailed residential and commercial heating demand, which typically peaks during colder months. The EIA noted that warmer-than-normal temperatures in key regions reduced short-term demand for natural gas, easing pressure on storage inventories. While winter withdrawals had been 21% higher than average due to January’s cold snap, the April storage report highlighted a return to seasonal norms.

3. Trade Tensions Cloud LNG Export Growth

Despite record LNG export capacity additions in 2025—including the ramp-up of Plaquemines LNG Phase 1—the U.S.-China trade dispute introduced uncertainty. China’s retaliatory tariffs on U.S. goods, effective April 2, 2025, risked diverting LNG flows to other markets. The EIA revised its 2025 LNG export forecast downward to 14.6 Bcf/d, from an earlier estimate of 15.2 Bcf/d, citing global demand risks.

4. Production Volatility and Cost Pressures

Domestic production averaged 103.0 Bcf/d in April, a 0.6 Bcf/d dip from the prior week. While output had reached a record 106.4 Bcf/d in early 2025, cost pressures—including higher steel prices due to tariffs—slowed drilling activity. The rig count, a leading indicator of future production, fell by 34 units year-over-year, signaling potential supply constraints later in 2025.

Looking Ahead: Balancing Oversupply and Structural Demand

The May 7 price decline reflects a market recalibration toward near-term oversupply risks. However, the EIA maintains its $4.30/MMBtu average price forecast for 2025, citing long-term demand drivers:

• LNG exports are expected to grow to 16.4 Bcf/d by 2026 as new terminals like Golden Pass come online.
• Power-sector demand will rise by 2% annually as natural gas displaces coal in electricity generation.
• Storage constraints by summer could tighten inventories, with the EIA projecting end-of-season storage at 3,660 Bcf—3% below the five-year average.

Conclusion

The May 7 price drop underscores the fragility of natural gas markets in balancing supply and demand. While short-term factors like storage surpluses and trade uncertainties are bearish, structural tailwinds—including LNG export growth and coal-to-gas switching—support the EIA’s $4.60/MMBtu price target for 2026. Investors should monitor storage reports closely: if injections continue to exceed expectations, prices could remain under pressure until summer demand peaks. Conversely, a return to colder weather or a faster-than-expected LNG ramp-up could reverse the downward trend.

For now, the market’s focus remains on navigating the tightrope between oversupply risks and long-term fundamentals.