Nat-Gas Prices See Support from Forecasts for Warmer US Weather

October Nymex natural gas prices saw a modest gain, extending a rally on forecasts for warmer temperatures in the northern US, which is expected to boost short-term demand for power generation. However, this price support is set against a backdrop of robust supply, with US natural gas production near record highs at 107.1 bcf/day, complemented by elevated EIA production forecasts for 2025 and 2026 and strong rig activity. Weekly inventory builds aligned with consensus, maintaining supplies 5.6% above the five-year seasonal average, indicating ample availability despite the temporary demand-side support.

Analysis

October Nymex natural gas (NGV25) futures extended a one-week rally with a modest +0.33% gain, nearing a four-week high on forecasts for warmer temperatures in the northern and central US, which is expected to temporarily boost cooling demand. However, this short-term, weather-driven price strength is countered by significant bearish supply fundamentals. US dry gas production is near a record high at 107.1 bcf/day, a 4.6% year-over-year increase, while the EIA has recently raised its production forecasts for both 2025 and 2026. This robust output is reflected in storage levels; the latest EIA report showed an inventory build of +55 bcf, which, while in line with consensus, was substantially above the 5-year average build of +36 bcf. Consequently, total inventories now stand 5.6% above their 5-year seasonal average, indicating an ample supply cushion. Compounding the supply pressure are signs of softer demand, including a 7.82% year-over-year drop in weekly electricity output and a 3.5% week-over-week decline in net flows to LNG export terminals.

Key Decisions for Investors

• Investors should view the current weather-driven price rally with caution, as strong underlying supply fundamentals, including production at 107.1 bcf/day and inventories 5.6% above the 5-year average, suggest the rally may be unsustainable.
• The combination of near-record production, upwardly revised EIA forecasts, and swelling inventories presents a potential opportunity for producers to hedge future output or for traders to consider bearish positions on any signs of price weakness.
• Monitor upcoming weather forecast revisions and weekly EIA storage reports closely, as any indication of moderating temperatures or larger-than-expected inventory builds could act as a significant catalyst for a price reversal.