Natural Gas News: Bearish Market Holds Despite Short-Covering Rally and Weather Boost

Natural Gas Futures Bounce off Lows but Supply Pressures Limit Upside

Natural gas futures edged higher mid-session Friday as technical buying followed Thursday’s price reversal off a 3.25-month low. Despite the upward move, strong supply metrics and limited near-term weather-driven demand kept gains in check, suggesting any rally may struggle for sustained traction.

At 16:20, Natural Gas is trading $3.105, down $0.001 or -0.03%.

Is Short-Covering Fueling a Temporary Rebound?

Thursday’s reversal sparked renewed interest in natural gas after the September contract found support at $2.972. A close above this level confirmed a bullish chart pattern, but a trade below it would invalidate the setup and open the door to further losses toward $2.885. With prices significantly oversold, technicals are favoring a potential short-covering rally toward the $3.340 level — the 50% retracement of the $3.707 to $2.972 decline.

Are EIA and Production Numbers Weighing on Sentiment?

Bearish sentiment remains intact due to fundamental oversupply. The EIA reported a +48 Bcf build in storage for the week ending July 25, outpacing expectations of +41 Bcf and far exceeding the five-year average of +24 Bcf. This pushed inventories to 6.7% above the five-year average despite being 3.9% lower year-over-year.

Adding to the pressure, US dry gas production continues to trend higher, averaging 107.8 Bcf/day — up 2.4% y/y. The latest Baker Hughes data showed active gas rigs climbed by five to 122, the highest since late 2023, reinforcing expectations for further output gains. Meanwhile, gas demand was down 7% y/y at 80.5 Bcf/day, while LNG feedgas flows fell 2.4% week-on-week to 14.9 Bcf/day.

Will Hotter Mid-August Weather Rescue Bulls?

Weather models offer some hope. Atmospheric G2 raised temperature expectations for August 5–9 across the Southwest and Texas, pointing to above-average heat likely to boost cooling demand. However, NatGasWeather noted that more moderate temperatures across most of the US through next week could cap national demand in the near term.

That said, electricity demand remains robust. The Edison Electric Institute reported a notable 8.1% y/y jump in US electricity output for the week ended July 26, reflecting high air-conditioning loads and providing a tailwind for gas usage in the power sector.

Market Forecast: Modestly Bearish with Upside Risk

The short-term outlook leans bearish given strong supply, rising production, and moderate upcoming temperatures. However, oversold technicals and hotter mid-August forecasts pose upside risk. Bulls will need a firm close above $3.340 to regain control, while a break below $2.972 would likely reignite selling pressure. Traders should watch weather updates and EIA inventory data closely as key catalysts heading into next week.

More Information in our Economic Calendar.