Nat-Gas Prices Rebound as US Weather Forecasts Turn Hotter

October Nymex natural gas prices rose 1.67% on Tuesday, recovering from a 4-week low, driven by forecasts for hotter US temperatures from September 28-October 2 that sparked short covering on expectations of increased electricity demand for air conditioning. This rebound occurred despite underlying bearish pressures from abundant US natural gas supplies, near-record production levels of 107.4 bcf/day, and a larger-than-expected inventory build of +90 bcf for the week ended September 12, which left inventories 6.3% above their 5-year seasonal average.

Analysis

October Nymex natural gas (NGV25) experienced a short-term relief rally, closing up 1.67% after hitting a 4-week low. This price recovery was primarily technical, driven by short covering in response to forecasts for warmer-than-usual temperatures in the central and northern US from September 28 to October 2, which could temporarily boost power-sector gas demand for air conditioning. However, this weather-induced move contrasts sharply with the prevailing bearish market fundamentals. The supply side remains robust, with US natural gas inventories standing 6.3% above their 5-year seasonal average as of September 12. The most recent weekly EIA report amplified this supply glut, showing a +90 bcf inventory build that surpassed both consensus (+81 bcf) and the 5-year average (+74 bcf). Furthermore, US dry gas production is operating near record highs at 107.4 bcf/day, a 4.8% year-over-year increase, and the EIA has upwardly revised its 2025 production forecast. While domestic gas demand (+3.7% y/y) and electricity output (+0.83% y/y) show some support, a 5.8% week-over-week decline in LNG net flows presents a headwind, indicating the market remains fundamentally oversupplied.

Key Decisions for Investors

• Investors should recognize the recent 1.67% price gain as a short-term, weather-driven event, as the underlying fundamentals of high production and inventories 6.3% above the 5-year average remain bearish.
• Given the oversupply conditions, consider using rallies based on transient catalysts, such as short-term weather forecasts, as potential opportunities to initiate or add to short positions in natural gas futures.
• Closely monitor weekly EIA storage reports and daily production figures, as a continuation of above-average inventory builds and near-record output will likely maintain downward pressure on prices.
• Watch for a sustained reversal in LNG export flows, as a significant increase from the current weekly decline of 5.8% would be a necessary catalyst to begin absorbing the domestic supply surplus and support a more durable price recovery.