Stubborn Oversupply and Production Surge Pressure NG=F
September natural gas futures tumbled beneath the critical $3.00/MMBtu threshold as relentless production growth in the Lower 48 outpaced summer demand. Dry gas output climbed to 108.0 bcf/d, marking a 3.4 percent year-on-year increase, while drilling activity accelerated to 124 active rigs, the highest count in two years. This expansion in supply was compounded by the Baker Hughes report showing a net gain of two rigs last week, reinforcing the bearish backdrop for NG=F. Spot prices at Henry Hub slid to $2.87/MMBtu as physical cash markets struggled to absorb the glut. Traders responded by aggressively pressing short positions, confident that storage surpluses exceeding the five-year norm by 195 bcf would cap any rally.
Mild Weather and Storage Surplus Amplify Downward Momentum
Unseasonably cool conditions across the demand core further deflated bullish expectations. Cooling degree days trailed summer norms as high-pressure systems stalled in the Pacific Northwest and Rockies, diverting heat away from the energy-hungry Southeast. The EIA’s latest weekly report showed working gas inventories at 3,123 bcf as of July 25, a build of 48 bcf that dwarfed the five-year average injection of 24 bcf. With storage now 123 bcf below last year but still 195 bcf above the five-year seasonal average, shorts find ample cover to maintain selling pressure, confident that the surplus will persist into early autumn.
Technical Indicators Signal Near-Term Weakness
Chart patterns reveal NG=F carving out a descending channel from the $3.13 high to the recent low of $2.89. Momentum oscillators have flipped negative, and the head-and-shoulders neckline near $3.05 was decisively breached, setting the stage for targets at $2.71 and even $2.39 if selling intensifies. A failure to reclaim Friday’s high of $3.13 or Monday’s intraday peak at $3.08 underscores the dominance of bears. Anchored volume-weighted average price lines dating back to the 2024 lows now converge around $2.97, offering the next line in the sand for any short-covering rally.
Heatwaves and Tropical Watches Offer Flicker of Demand
Mid-August weather forecasts tilted hotter for much of the U.S., with Atmospheric G2 projecting a spike in cooling degree days for August 10–19. This warming trend could marginally boost electricity burn as air-conditioning loads climb, yet the impact on national demand may remain uneven. The Gulf Coast and Mid-Atlantic stand to see the greatest lift, but supply headwinds and ample Gulf Coast salt cavern inventories will temper any sustained price advance. Meanwhile, early tropical disturbances in the Atlantic suggest the potential for Gulf Coast disruptions, but pipeline maintenance and flow constraints on Permian Highway and Viking Gas Transmission have thus far failed to impart lasting support.
LNG Exports and Electricity Burn Provide Limited Support
U.S. LNG feedgas flows rose to 15.5 bcf/d, a 3.9 percent weekly increase, yet underutilization of export capacity and weak global demand have muted the upside. Domestic power generation ticked up by 8.1 percent year-on-year to 98,772 GWh for the week ending July 26, reflecting healthy consumption but not enough to offset rising production. Eastern Gas South and Transco Zone 6 non-NY posted modest gains in spot markets, but overall regional averages remain soft as surplus supplies find ready homes in storage rather than in consumption.
Market Outlook and Positioning
Given the confluence of robust supply growth, lackluster weather-driven demand, bloated storage and bearish technical setups, NG=F is poised for further downside. Resistance now aligns at $3.04 and $3.13, with support at $2.90 and the key pivot of $2.71. Instructed by the data, a neutral-to-bearish stance is warranted. Short-term traders should consider maintaining bearish exposures or sitting on the sidelines until clear breakouts above the descending channel emerge. Medium-term investors eyeing potential heat-driven rallies might wait for a sustained close above $3.08 before shifting to a cautious long posture.
