Natural Gas Prices Plummet Amid Production Surge and Trade Tensions

Natural gas prices dropped sharply, closing down 5.2%. Weaker demand and increased output are causing a significant impact. The larger market implications could affect S&P 500 gas-related stocks.

Date: 09-04-2025

AI Rating: 5

Market Overview: The recent report highlights a notable decline in May Nymex natural gas prices, which closed down 5.2% and reached a 1-3/4 month low. This decline is attributed to escalating trade war concerns and a surge in US natural gas production, which rose by 2% year-over-year to 104.0 bcf/day. Such increases in output may further depress prices if the demand does not keep pace.
Demand Factors: Despite a rise in gas production, demand has also increased significantly, with US gas demand touching 82.6 bcf/day, a 16.4% increase year-over-year. The Edison Electric Institute indicated that total US electricity output also rose by 0.9% year-over-year, which may positively impact natural gas demand among utility providers. However, if production continues to outpace demand, the price equilibrium may be offset.
Impact on Inventory: The weekly EIA report indicated an increase in inventories, showing a build of 29 bcf, above market expectations. This builds the evidence of somewhat weaker conditions in the natural gas market, especially since the inventory is down 21.5% year-over-year but remains below the five-year average, suggesting that tight supplies are a mixed signal for future price increases.
Long-Term Bullish Factors: The potential approval of natural gas export projects could enhance demand, supporting overall prices, despite the immediate bearish outlook. If the Biden administration’s policies continue to align with promoting LNG exports, this could create demand-side strength in the longer term.
Overall, mixed signals in the short term due to production oversupply and a bearish inventory report balance against potential long-term increases in demand from exports. Investors should closely assess these developments as they could materially impact companies involved in the natural gas sector.

Stocks: XOM CVX CHK