Natural Gas News: Hot Weather Lifts Futures but Inventory Caps Market Rally

Hot Weather Forecasts Support Natural Gas, but Supply Signals Limit Rally

U.S. natural gas futures ended higher Friday, rebounding from early session weakness and overcoming Thursday’s reversal top. Traders initially leaned toward a downside correction following a six-day rally, but renewed buying surfaced on forecasts for extreme heat across key demand regions. Despite the weather-driven support, abundant supply and a rising rig count capped the upside.

On Friday, U.S. natural gas futures settled at $3.565, up $0.023 or +0.65%.

Will Hotter Temperatures Offset Ample Inventory and Rising Production?

Near-term weather models remain the dominant bullish catalyst. Vaisala projected above-normal heat across much of the U.S. for July 22–26, particularly in the Midwest where highs are expected to reach the mid-90s. Atmospheric G2 added that hotter trends could persist into early August in the South-Central and Southwestern U.S. This has potential to drive cooling demand higher, increasing gas-fired power burn.

Still, traders are weighing strong production and inventory levels against the bullish weather. Lower-48 dry gas output stood at 108.3 Bcf/d on Friday, up 5.3% year-over-year, according to BNEF. Simultaneously, demand was nearly flat at 78 Bcf/d (-0.3% y/y). That imbalance is reinforced by a weekly inventory build of +46 Bcf, slightly above both expectations and the five-year norm. Total storage is now 6.2% above the seasonal average, despite being 4.9% below year-ago levels.

Is Rising Electricity Demand Enough to Sustain Price Strength?

Support for gas prices also came from stronger electricity generation data. The Edison Electric Institute reported a 1.1% year-on-year increase in U.S. power output for the week ended July 12. For the 52-week period, generation rose 2.4% y/y, reflecting heightened cooling demand which could aid natural gas offtake from utilities.

However, rising production expectations could temper any weather-related rallies. Baker Hughes reported the active U.S. gas rig count rose by 9 to 117, the highest since early 2023. This marks a firm recovery from the four-year low of 94 rigs seen last September, signaling that producers are positioning for stronger volumes heading into late summer.

Can Bulls Push Through Technical Resistance?

Technically, traders are watching for a breakout above $3.629 to negate Thursday’s reversal and reopen the upside. If that occurs, resistance looms between $3.70 and $3.799—defined by the 50-day and 200-day moving averages. Sellers may emerge on the first test unless forecasts trend decisively hotter.

Market Forecast: Cautiously Bullish

With short-term heat forecasts supporting demand and electricity output firming, the near-term outlook leans cautiously bullish. However, elevated inventories and a ramp-up in rig activity suggest that any upside will be contested. A sustained rally likely depends on hotter-than-expected weather and increased LNG flows.

More Information in our Economic Calendar.