Natural Gas News: October Futures Face Pressure as Inventory Surplus Stokes Bearish Sentiment

Natural Gas Futures Under Pressure as Market Awaits October Contract

U.S. natural gas futures extended their downward trend on Wednesday, continuing a seven-session losing streak as the market rolls into the October futures contract. Weakened by declining weather-driven demand and a growing inventory surplus, natural gas futures are trading decisively below both the 50-day and 200-day moving averages. This bearish trend has emboldened short-sellers, pushing prices closer to recent lows and sparking concerns about further declines.

At 10:42 GMT, Natural Gas Futures are trading $2.070, down $0.015 or -0.72%.

Storage Surplus and Weather Conditions Add Bearish Sentiment

The ongoing bearish sentiment is largely driven by an oversupply situation exacerbated by high storage levels. The Energy Information Administration (EIA) reported a larger-than-expected storage injection of 35 billion cubic feet (Bcf) for the week ending August 16, surpassing market expectations and heightening fears of a supply glut. Current storage levels stand at 12.6% above the five-year average, applying additional pressure on prices.

Weather patterns are also contributing to the market’s weakness. While record high temperatures in the upper Midwest are driving strong power-sector demand, the timing—late August—means this demand boost is likely to be short-lived. As cooler temperatures are expected to set in, particularly in the northern U.S., the overall demand for natural gas is forecasted to drop significantly, further dampening price prospects.

High Coal Stockpiles Present Additional Risks

Adding to the bearish outlook, high coal stockpiles are exerting indirect pressure on natural gas prices. Analysts from EBW Analytics have pointed out that long-term take-or-pay contracts for coal plants may lead to “uneconomic” decisions to burn coal, even with low prevailing dark spreads. This scenario poses a bearish threat to electricity markets and, by extension, to natural gas prices.

Market Outlook: Bearish Trend Likely to Persist

In the near term, the outlook for natural gas remains bearish. With the shoulder season approaching and storage levels high, prices are expected to struggle. The $1.882 level serves as a key support and target, and a break below this could trigger further selling, with some market participants eyeing even lower targets around $1.60 or $1.48.

While any late-summer heatwaves could provide temporary support, a significant price recovery is unlikely before the winter heating season. Traders should closely monitor upcoming EIA storage reports, weather forecasts, and global demand trends for any signs of a potential shift in market conditions. Overall, the market remains vulnerable to additional declines as the fundamental factors driving the bearish trend show little sign of abating.

Technical Analysis

With the rollover to the October futures contract traders will be watching the following levels for direction. The main trend is down, a sustained trade through $2.063 will reaffirm the downtrend with $1.882 the next major target price. A move through $2.482 will change the main trend to up.