Natural Gas News: Can the Short-Covering Rally Hold Amid Mild Temps and Ample Supply?

Natural Gas Futures Struggle Amid Supply Surplus and Mild Weather

U.S. natural gas futures traded in a tight range this week, primarily driven by opposing factors of mild weather and concerns over supply. The market experienced a technical bounce on Monday, fueled by a closing price reversal bottom, which lifted prices temporarily. This initial rally was supported by a low near $2.514, a significant level that has provided a support zone in recent weeks. By the end of the week, prices were moderately higher, closing at $2.669, reflecting a mere 0.23% weekly gain as the market sought direction between supply concerns and weak demand.

Weather Remains a Bearish Force

Warm temperatures continued across much of the U.S., diminishing natural gas demand as heating needs remained low. Weather models from NatGasWeather showed persistent warmth in the southern and eastern regions, with temperatures ranging between the 60s and 80s Fahrenheit. Cooler conditions in the West and Central regions were not substantial enough to offset the overall light demand forecast. This mild weather outlook contributed to a bearish tone, as reduced heating degree days limited the need for gas consumption across key regions.

Elevated Storage Levels Add Downward Pressure

The latest report from the U.S. Energy Information Administration (EIA) showed a storage injection of 69 billion cubic feet (Bcf), exceeding forecasts of 64-66 Bcf and bringing total working gas in storage to 3,932 Bcf. This figure positions current stock levels 215 Bcf above the five-year average, underscoring a robust supply cushion as winter approaches. The ample storage reflects high production rates and the impact of favorable weather, with steady output near 102.8 Bcf per day further reinforcing the oversupply situation.

LNG Export Limitations

Export trends played a smaller role in price support, as the Freeport LNG terminal faced potential operational issues, which could limit liquefied natural gas (LNG) exports. Any disruption at Freeport would reduce export volumes, leaving more supply in the domestic market and likely weighing on prices. This factor, combined with the hurricane path missing key Gulf of Mexico production areas, did little to counterbalance the mild weather and robust storage.

Technical Setup Suggests Cautious Optimism

Despite these bearish fundamentals, the weekly technical setup showed a closing price reversal bottom, suggesting buying interest at current price levels. If futures can break above $2.818, additional short-covering may drive prices higher, with resistance in the $3.044 range as a potential target. However, a drop below $2.514 would invalidate this pattern, likely leading to a sharper sell-off with the next support around $2.201.

Market Forecast: Neutral to Bearish

Given the mild weather forecast, high storage levels, and limited export potential, the near-term outlook for natural gas remains neutral to bearish. While technical factors hint at a possible rally above $2.818, a sustained price increase seems unlikely without a demand boost from colder weather or increased LNG exports. Traders should monitor next week’s EIA report closely, as further storage builds could reinforce the bearish trend. Despite the possibility of more short-covering, the major forces remain bearish, meaning we’re still in “Sell the Rally” mode.