Natural Gas News: Will Rising Production Undermine Any Weather-Driven Price Rally?

Will Natural Gas Hold Technical Support as Storage Builds and Demand Lags?

U.S. natural gas futures ended the week flat at $3.334, masking a volatile session marked by shifting forecasts and persistent oversupply concerns. Despite a Friday rebound driven by warmer weather outlooks, the broader market tone remains cautious, with traders eyeing key support levels and bearish storage trends.

EIA Storage Surprises Reinforce Oversupply Narrative

The latest EIA report posted a 120 Bcf injection for the week ending May 16, exceeding both the five-year average of 87 Bcf and market expectations. Working gas in storage rose to 2,375 Bcf—3.9% above the five-year norm and narrowing the year-on-year deficit to 12.7%. This marks the second consecutive week of triple-digit builds, maintaining bearish pressure as traders interpret the data as evidence of a saturated market.

Europe’s gas storage, while still trailing the seasonal norm at 45% full versus a 56% five-year average, offered minimal spillover support to U.S. benchmarks. The global picture continues to point toward adequate supply coverage heading into summer.

Production Remains Strong While Cash Markets and Rig Counts Signal Imbalance

Dry gas production in the Lower 48 averaged 107 Bcf/day on Friday, up 4.7% year-over-year, sustaining supply pressure even as regional constraints build. Spot prices in the Permian Basin turned negative, underscoring infrastructure bottlenecks and localized oversupply.

Meanwhile, active U.S. gas-directed rigs declined by 2 to 98 last week, per Baker Hughes, signaling a modest slowdown. However, the production pace remains elevated relative to demand, limiting the immediate bullish potential of a lower rig count.

Power Demand Picks Up, But Weather Still Caps Upside

A warmer shift in NOAA’s May 28–June 1 outlook sparked Friday’s short-covering, as the potential for increased cooling demand reentered the picture. Electricity output rose 2.5% y/y for the week ended May 17, according to the Edison Electric Institute, supporting expectations for higher gas-fired generation.

Still, current national weather patterns remain largely bearish. Below-average temperatures persist across the East and Midwest, with highs mostly in the 50s–70s. While the West and South remain hot, solar penetration is dampening gas demand from the power sector.

Outlook: Bearish Pressure Persists as Storage Builds and Demand Disappoint

The near-term outlook remains bearish. Storage injections continue to exceed seasonal norms, and production remains elevated at over 107 Bcf/day. Despite a modest uptick in electricity demand and a warmer shift in forecasts for early June, overall consumption is still underwhelming, particularly with mild temperatures limiting power burn in key demand regions.

LNG exports and pipeline flows to Mexico offer consistent support but are not growing fast enough to offset domestic oversupply. Solar generation continues to displace gas-fired power in the West, further capping demand growth. Unless a sustained heat wave emerges or production slows meaningfully, fundamentals point to further downside pressure in the weeks ahead.

Traders should closely monitor early June weather trends and the next EIA storage print, as any deviation from the current supply-heavy narrative could influence sentiment. Until then, market conditions remain fundamentally soft.