Nat-Gas Prices Recover Somewhat as Temp Forecasts Turn Mixed

September Nymex natural gas prices rose 2.64% on Friday, recovering from a 9-month low on mixed weather forecasts. However, the market faces significant bearish pressures, including the EIA's upward revisions to 2025 and 2026 US natural gas production forecasts, which are already near record highs. This, combined with a larger-than-expected 56 bcf inventory build and declining US electricity output, indicates ample supply and continued downward price risk.

Analysis

September Nymex natural gas futures experienced a 2.64% price increase, recovering from a nine-month low, primarily driven by mixed short-term weather forecasts. However, this rebound is set against a backdrop of significant bearish fundamental pressures. The EIA has upwardly revised its US natural gas production forecasts for both 2025 and 2026, signaling sustained high output. This is corroborated by current data showing US dry gas production is up 7.3% year-over-year, while domestic demand has only grown 1.2% y/y, indicating a widening supply-demand imbalance. Further weighing on prices, the latest weekly inventory report showed a build of 56 bcf, exceeding both consensus and the five-year average, pushing total inventories to 6.6% above their five-year seasonal norm. A 1.9% year-over-year decline in weekly US electricity output also points to softening domestic consumption. The primary bullish counterpoint remains strong international demand, evidenced by a 4.8% week-over-week increase in LNG export flows and European gas storage levels at 72%, below the five-year average of 79%.

Key Decisions for Investors

• Investors should treat the recent 2.64% price rally with caution, as it is driven by short-term weather sentiment and runs contrary to the fundamental picture of oversupply.
• The crucial metric to monitor is the spread between robust US production growth (+7.3% y/y) and lagging domestic demand (+1.2% y/y), as a continuation of this trend will likely cap any significant price appreciation.
• The strength of LNG exports remains the key price support, so investors should closely watch European storage data and US export terminal flows for any signs of weakening international demand, which could trigger a resumption of the downtrend.