Cooler-Than-Normal US Temps Undercut Nat-Gas Prices

September Nymex natural gas prices declined to a 9.5-month low, primarily driven by forecasts for cooler late-summer weather expected to reduce demand for air conditioning and robust, increasing US natural gas production. The EIA recently raised its 2025 and 2026 production forecasts, with current output near record highs, outweighing a smaller-than-expected weekly inventory build and indicating adequate overall supply despite higher electricity output.

Analysis

September Nymex natural gas futures have declined to a 9.5-month low, pressured by a combination of robust domestic production and forecasts for weaker near-term demand. On the supply side, US lower-48 dry gas production is running at 109.0 bcf/day, a significant 6.3% year-over-year increase, with active drilling rigs holding near a two-year high. This bearish supply outlook is reinforced by the EIA's recent upward revisions to its 2025 and 2026 US production forecasts. Concurrently, demand is expected to soften as Vaisala forecasts cooler-than-normal temperatures for early September, which would reduce gas consumption for air conditioning. While there are supportive factors, such as a 13.5% week-over-week increase in LNG export flows and a smaller-than-consensus weekly inventory build of +13 bcf, they have been insufficient to counter the broader supply glut. The overall inventory level, standing at 5.8% above the 5-year seasonal average, signals adequate domestic supply, overshadowing the fact that inventories are down 3.0% year-over-year.

Key Decisions for Investors

• Given the strong supply growth outpacing demand and bearish weather forecasts, a short-term negative stance on natural gas prices is warranted, with the fundamental picture supporting further price weakness.
• Investors should closely monitor LNG export data and European storage figures, as sustained strength in international demand represents the most significant potential catalyst to counter the domestic oversupply.
• Pay close attention to the weekly EIA inventory reports relative to their 5-year averages, as a sustained trend of smaller-than-average builds could signal a tightening market and a potential price floor.