It’s natural gas producers’ turn in the barrel. Natural gas prices are falling to historic lows amid higher-than-expected storage builds, but downside risks are severe and perhaps underappreciated. Domestic demand for natural gas has been crushed by COVID, and LNG exports are out of the money until September – and possibly beyond. Moreover, additional natural gas supply may be coming online as $40/barrel oil prices tempt Permian producers to increase oil output – and ramp up associated natural gas production. Natural gas storage levels could soon start to bump up against regional or even national capacity constraints, further pressuring prices and giving even more heartburn for the U.S. oil and gas complex.

U.S. storage levels are rising rapidly

Natural gas consumption is highly seasonal, peaking in the winter, decreasing in the spring, rebounding in the summer for power load (but not, typically, to winter levels), and moderating in the fall – at which point the cycle starts over again. Injections to inventories occur in the “shoulder months” of the fall and spring, with storage drawdowns occurring in the winter (and, depending on the location, in the summer).