Will Warmer Weather Stall the Natural Gas Rally?

U.S. natural gas futures pulled back on Tuesday after reaching a multi-month high of $4.901 in the previous session. Profit-taking and milder weather forecasts weighed on prices, despite tight storage levels and lower production. Traders are now watching whether the recent uptrend will resume or if further downside pressure will emerge.

On Tuesday, Natural Gas Futures settled at $4.342, down $0.111 or -2.49%.

A move above $4.901 would signal a continuation of the rally, with the next major target at $5.627. On the downside, key support levels include a pivot at $4.322, followed by $4.132, which would indicate a shift in momentum. Additional support lies at $3.924 and $3.742, with the 50-day moving average at $3.654 serving as the primary level controlling the intermediate trend.

Is Weather the Biggest Risk to Bulls?

Forecasts for warmer-than-expected temperatures in mid-March are dampening demand expectations. Atmospheric G2 reported that the northern and western U.S. will see above-normal temperatures from March 16-20, reducing heating demand. Additionally, NatGasWeather noted that much of the interior U.S. will experience highs from the upper 50s to the 80s this week, contributing to weak short-term demand.

These mild conditions contrast with underlying supply concerns. BloombergNEF projects U.S. natural gas storage to be 10% below the five-year average by summer, while EIA data shows inventories are already 11.3% below their seasonal norm. Storage tightness remains a supportive factor, but without near-term cold, traders may hesitate to push prices higher.

Is Production Weak Enough to Support Prices?

Lower-48 dry gas production stood at 106.0 Bcf/day on Tuesday, reflecting a modest year-over-year increase of 2.7%. Meanwhile, demand fell to 77.2 Bcf/day, a 4.4% decline from the previous year. LNG flows to export terminals also dipped slightly to 14.9 Bcf/day. While production is not surging, the absence of strong demand leaves prices vulnerable in the short term.

Another bearish signal came from last week’s EIA report, which showed a smaller-than-expected storage draw of 80 Bcf, below both forecasts (-93 Bcf) and the five-year average draw (-94 Bcf). This suggests demand is failing to exert enough pressure to accelerate withdrawals.

Will LNG Expansion Drive Long-Term Support?

In a longer-term bullish development, President Trump lifted the Biden administration’s pause on LNG export project approvals, opening the door for increased natural gas demand. A Bloomberg report indicates the administration is close to approving the Commonwealth LNG export facility in Louisiana, which would add to U.S. export capacity and tighten domestic supply.

Baker Hughes data also showed a decline in active U.S. gas rigs, which fell by one to 101 last week. Though still above the 3.5-year low of 94 rigs set last September, the trend suggests limited new production growth, which could help support prices over time.

Market Outlook: Will Bulls Regain Control?

Short-term natural gas prices face downward pressure from warming weather and softer demand. However, tight storage and constrained supply provide underlying support. A move above $4.901 would reestablish the uptrend, while a break below $4.132 could accelerate selling toward lower support levels. Traders should watch weather forecasts and production trends closely, as any shift in fundamentals could dictate the next directional move.

More Information in our Economic Calendar.