Natural Gas News: Hot Weather Forecast Fuels Cautious Bullish Sentiment in Futures

Hotter Weather Outlook Lifts Natural Gas, but Rising Output Caps Gains

Natural gas futures rebounded Friday, with August contracts closing higher after updated forecasts pointed to hotter temperatures across the central and eastern U.S. for early August. The shift is expected to lift cooling demand and electricity usage, giving short-term support to natural gas prices despite mounting production headwinds.

Will Increased Air Conditioning Demand Offset High Output?

Weather forecaster Atmospheric G2 said Friday that the outlook for August 4–8 had turned warmer, especially in the central and eastern regions of the country. That’s expected to drive higher power demand from utilities, which rely heavily on natural gas-fired generation during heatwaves. The Edison Electric Institute reported a +2.1% year-over-year rise in total U.S. electricity output to 99,373 GWh for the week ending July 19, underscoring rising demand.

However, gains were initially limited Friday as traders weighed stronger U.S. supply metrics. Lower-48 dry gas output was pegged at 107.2 bcf/day, up +3.1% year-over-year, according to BNEF. Meanwhile, demand for the same day stood at 80.9 bcf/day, up just +0.9% y/y, signaling a widening supply-demand gap. Additionally, LNG net flows to U.S. export terminals dropped -5.4% week-over-week to 14.7 bcf/day, raising questions about near-term export-driven support.

EIA Storage Data Surprises to the Bullish Side

Thursday’s EIA storage report helped spark the late-week recovery in prices. Inventories for the week ended July 18 rose by just +23 bcf, underperforming both consensus estimates (+27 bcf) and the five-year average (+30 bcf). While storage levels remain +5.9% above their seasonal average, they are still -4.8% lower than a year ago, suggesting some tightening.

Europe’s storage levels, by contrast, remain weak. Inventories as of July 22 were just 66% full versus the five-year average of 74% for this time of year. That discrepancy may help U.S. exports regain momentum later, but the near-term picture is dominated by domestic conditions.

Are Rising Rig Counts Signaling More Supply Pressure Ahead?

Baker Hughes reported Friday that the number of active U.S. natural gas rigs climbed by +5 to 122—the highest level in nearly two years. That marks a notable increase from the 4-year low of 94 rigs seen in September 2024. A sustained rise in drilling activity suggests producers are anticipating stronger margins or are hedging against expected demand, but it also adds bearish pressure over the medium term if output accelerates further.

Market Forecast: Cautiously Bullish Near-Term

The short-term outlook leans cautiously bullish on the back of hotter U.S. weather and supportive storage data. However, persistent high production and climbing rig counts remain a ceiling on broader price rallies. Traders should expect rangebound action with upside bias as weather-driven demand plays out into early August.

Technically, the main trend is down. Although the market posted two straight gains to finish the week, it was not enough to offset the gap lower opening and the three straight days of losses from Monday to Wednesday.

Looking at the numbers, $3.061 is minor support with $2.885 to follow. On the upside, gains could be capped by renewed selling at the $3.345 short-term pivot.

More Information in our Economic Calendar.