Natural Gas News: Short-Covering Fuels Futures Rally Ahead of Contract Expiry

Short-Covering and Expiry Day Volatility Drive U.S. Natural Gas Futures Higher

U.S. natural gas futures extended gains for a third straight session Wednesday, buoyed by short-covering and expiry-driven volatility. After reclaiming the key $2.821 level—previously a long-term bottom—the front-month contract is now aiming for technical resistance at $2.922, $3.039 and $3.221.

Despite weak supply-demand fundamentals, momentum has turned upward as traders square positions ahead of the September contract’s expiry.

At 13:10 GMT, Natural Gas Futures are trading $2.856, up $0.066 or +2.37%.

Is Short-Covering the Real Driver Behind This Rally?

The rally appears to be less about fundamentals and more about technical and speculative action. Natural gas futures found support earlier this week at $2.695, another long-term bottom, and bounced sharply. The break above $2.821 is technically significant, signaling short-term momentum shift.

However, the primary catalyst remains short-covering and position adjustments at month-end. A sustained move above $3.221 could open the door to a test of the 50-day moving average at $3.300—a key resistance level.

Should prices reverse and dip below $2.821, traders should watch for renewed selling pressure, with $2.695 and $2.647 serving as nearby downside targets.

What Role Are Storage and Supply Trends Playing?

The most recent EIA report showed a +13 Bcf injection for the week ending August 15—well below the +18 Bcf consensus and sharply under the five-year average of +35 Bcf. While inventories remain 5.8% above the five-year seasonal norm, the year-over-year shortfall of 3.0% hints at some tightening.

European storage levels tell a different story—currently 76% full compared to a five-year average of 84% for late August—suggesting that global supply concerns may provide modest underlying support. Still, overall storage levels remain adequate by historical standards.

Is the Rig Count Offering Any Clarity?

Baker Hughes data shows natural gas drilling rigs held steady at 122 last week—just below the recent two-year high of 124. The steady rig count, up from a four-year low of 94 last September, implies that producers are maintaining output levels despite current price volatility. Notably, any dip in production could be countered by rising LNG demand, offering potential price support in the near term.

Weather, Cash Markets, and Power Burns—What’s the Impact?

Forecasts for moderate temperatures across major consuming regions from the Midwest to Texas are likely to cap power burns, softening demand in the coming days. However, Henry Hub cash prices have firmed slightly, reflecting tighter spot availability. NatGasWeather projects demand to drop from strong to moderate, tempering upside expectations unless weather shifts.

Market Forecast: Cautiously Bullish Near-Term Outlook

Despite bearish supply-demand fundamentals, short-covering and expiry volatility are fueling the current rally. Technical momentum favors a bullish bias as long as prices stay above $2.821.

However, without fresh fundamental support—such as a bullish storage draw or a notable production dip—any breakout above $3.221 may struggle to hold. Traders should watch closely for signs of renewed selling post-expiry.

More Information in our Economic Calendar.