Natural Gas News: Weather-Driven Rally Stalls—Storage Surplus Limits Upside

Early Cold Fails to Sustain Rally

Natural gas futures surged at the start of the week as cold weather forecasts hinted at elevated heating demand across key regions. February contracts saw strong buying interest driven by arctic air projections across the Midwest and Northeast. However, by midweek, the market cooled as revised forecasts softened the intensity of the cold spell, prompting traders to unwind long positions.

Technically, the main trend is up, but the weekly closing price reversal top signals the presence of strong sellers. Follow-through selling pressure could lead to a test of the retracement zone at $3.197 to $2.959, while a trade through $4.201 will negate the chart pattern and signal a resumption of the uptrend.

Last week, Natural Gas futures settled at $3.354, down $0.029 or -0.86%.

Storage Surplus Keeps Bulls in Check

Despite the initial weather-driven rally, the EIA’s latest report revealed a storage withdrawal of 93 Bcf—short of the expected 100 Bcf. Total inventories now stand at 3,529 Bcf, reflecting a surplus of 166 Bcf above the five-year average. This persistent overhang has limited the upside, reinforcing a bearish undertone. With another draw of 127 Bcf anticipated, the surplus remains a weight on the market, restricting aggressive price movement.

Mexican LNG Demand Lends Support

Mexico’s rising LNG import demand has offered consistent support to U.S. natural gas markets. New Fortress Energy’s Fast LNG facility continues to push record gas volumes from South Texas, helping to offset some of the domestic supply glut. As export activity ramps up, this external demand provides a modest bullish counterbalance to otherwise bearish storage fundamentals.

European Disruption Favors U.S. Exports

Europe’s reliance on U.S. LNG has intensified following the cessation of Russian gas transit through Ukraine. With the disruption now in effect, European buyers are increasingly turning to U.S. supplies to compensate. This shift adds pressure to global LNG markets, potentially tightening domestic inventories in the months ahead. Although Europe has prepared for the supply gap, sustained demand from the region could support U.S. prices.

Bearish Outlook as Storage Surplus Holds Firm

While cold weather remains a factor, the natural gas market appears to lean bearish in the short term. Storage levels well above average continue to cap gains, and even with strong LNG demand, domestic inventories are sufficient to meet winter needs. Unless prolonged and severe cold returns, futures may struggle to sustain upward momentum. Traders should expect limited upside, with potential for further declines if milder weather persists. Unlike equity markets, a commodities market like natural gas is constantly in “sell the rally” mode due to the huge supply.

More Information in our Economic Calendar.