Natural Gas News: Short-Covering Rally Builds as Forecasts Turn Colder

Short-Covering Sparks Rebound in U.S. Nat Gas Futures, But Bearish Headwinds Persist

U.S. natural gas futures posted a technical reversal on Friday after plunging to a multi-month low of $2.893. Despite weak underlying fundamentals, the move sparked a wave of short-covering and profit-taking, lifting prices above key support levels. Traders halted aggressive selling, opening the door to a potential counter-trend rally.

On Friday, U.S. Natural Gas Futures settled at $3.008, up $0.070 or +2.38%.

Friday’s price action marked a possible bullish closing reversal bottom. A push through $3.024 would confirm this chart pattern and could fuel a short-term rally toward $3.237–$3.239, where key technical resistance from the 50-day moving average and a 50% retracement level align. Any advance to those levels is expected to draw renewed selling from bears targeting fundamental weakness.

Could Colder Forecasts Drive Heating Demand?

The immediate catalyst for the rebound was a colder shift in U.S. weather forecasts. Atmospheric G2 projected below-normal temperatures in key regions from October 22–31, including the Northeast, West Coast, and Southeast. The prospect of stronger heating demand led to speculative buying and short-covering into the weekend.

Still, weather-related demand has yet to outweigh rising supply pressures. Lower-48 dry gas production hit 107.9 bcf/day on Friday, up 3.7% year-over-year, with production forecasts continuing to rise. The EIA now expects 2025 output at 107.14 bcf/day, an increase from last month’s estimate of 106.60 bcf/day. Drilling activity remains elevated, with Baker Hughes reporting 121 active gas rigs, just below the 2-year high.

Is Demand Growth Keeping Pace with Supply?

Demand remains sluggish in comparison. Lower-48 gas consumption was down 6% year-over-year on Friday, reaching 69.7 bcf/day. LNG exports offered some support, with net flows to export terminals climbing 2.3% week-over-week to 16.2 bcf/day.

Electricity demand showed modest strength. The Edison Electric Institute reported a 5.1% year-over-year rise in U.S. power generation for the week ending October 11, with total output for the past 52 weeks up 2.86%. This suggests some support for baseline gas demand, although not enough to offset surging supply.

Do Storage Trends Support Further Price Gains?

Storage data remains mildly supportive but signals ample supply. The latest EIA report showed a +80 bcf inventory build—below both the +81 bcf consensus and the +83 bcf five-year average. Inventories are now 0.4% higher than last year and 4.3% above the five-year seasonal norm. In Europe, storage levels are at 83%, below the five-year average of 91%, but still sufficient for the time being.

Market Forecast: Short-Term Rally Likely Before Sellers Return

Given the combination of technical reversal, short-covering, and colder weather forecasts, a short-term bullish rally appears likely. However, with record U.S. production and weak domestic demand, any gains are expected to be capped. Expect bearish pressure to resume near the $3.24 area as fundamentals reassert themselves.

More Information in our Economic Calendar.