Spring temperatures across the continental United States were close to the seasonal average - providing no relief to a gas market struggling with too much production and excess inventories accumulated last winter.
Temperatures in March were a little lower than usual for the past 10 years, but April and May were in line with the 2013-2022 average, according to degree day data from the U.S. Climate Prediction Center (CPC).
For the three months as a whole, there were 1,064 population-weighted heating degree days across the Lower 48 states compared with a prior 10-year average of 1,022.
Over the same period, however, working gas inventories increased by 454 billion cubic feet compared with a prior 10-year average increase of 401 billion cubic feet.
Significantly larger-than-normal inventory builds despite slightly colder-than-normal temperatures early in the season confirms over-production in the market.
No progress was made eliminating excess inventories during the spring quarter.
Gas stocks ended the quarter with a surplus of 280 billion cubic feet (+13% or +0.68 standard deviations) above the prior 10-year average, having started in a surplus of 227 billion cubic feet (+12% or +0.58 standard deviations).
U.S. gas production increased to a new monthly record in March, the latest month for which data is available, and was 7% higher than the same month a year earlier.
Production was still rising in a delayed response to the extremely high prices that prevailed for much of 2022 following Russia's invasion of Ukraine.
Freeport LNG's re-opened export terminal did not make a significant difference in depleting the excess inventories accumulated during the winter of 2022/23.
Chartbook: U.S. gas inventories and prices
With inventories stubbornly high, prices remained under pressure throughout the spring months, averaging just $2.20 to $2.40 per million British thermal units, in only the 2nd or 3rd percentile for all months since 1990, after adjusting for inflation.
But there are signs that lower prices were starting to force a slowdown in drilling. The number of active rigs targeting primarily gas-rich formations declined to an average of 144 in May down from 153 in February.
Fewer rigs drilling for gas as well as oil (which results in associated gas from oil wells) will eventually rebalance production and consumption.
Unless the summer is unusually hot, boosting gas consumption by electricity generators, excess inventories look set to persist for several more months.
As a result, hedge funds and other money managers have been cautious about turning bullish on gas prices.
Funds' net position ended the quarter in the 35th percentile for all weeks since 2013 after starting it in the 19th percentile, well below the average throughout.
From a pricing perspective, the balance of risks must lie to the upside, but the market is still struggling to work down the surplus built up last winter, and until that starts to happen prices are unlikely to rise.
Related columns:
- U.S. oil and gas output still rising in response to high prices last year (June 1, 2023)
- U.S. gas prices slump after mild winter leaves big surplus (March 24, 2023)
John Kemp is a Reuters market analyst. The views expressed are his own
