Natural gas prices experienced a notable rebound on Monday, with May Nymex natural gas (NGK26) futures closing up +0.011, or +0.39%. This uptick marks a recovery from a 7.25-month nearest-futures low, as market participants reacted to forecasts predicting colder temperatures across parts of the United States, which could stimulate heating demand.
Immediate Market Drivers and Weather Impact
The primary catalyst for Monday’s price recovery was the emergence of short covering in natural gas futures, directly influenced by updated weather forecasts. The Commodity Weather Group reported on Monday that below-average temperatures are anticipated across the Upper Midwest region, with these conditions expected to persist through April 10. Such colder weather typically translates into increased demand for natural gas for heating purposes, providing immediate upward pressure on prices.
Global Supply Dynamics Offer Medium-Term Support
Beyond the immediate weather-driven demand, natural gas prices are also finding medium-term support from a tightening outlook for global liquefied natural gas (LNG) supplies. A significant development impacting this outlook occurred on March 19, when Qatar reported “extensive damage” at the world’s largest natural gas export plant, located at Ras Laffan Industrial City. According to Qatar, attacks by Iran damaged 17% of Ras Laffan’s LNG export capacity, with repairs projected to take between three and five years. Given that the Ras Laffan plant accounts for approximately 20% of the global liquefied natural gas supply, this reduction in capacity could significantly boost demand for US natural gas exports.
Further exacerbating global supply concerns is the closure of the Strait of Hormuz. Due to the ongoing conflict in Iran, this vital shipping lane has seen a sharp curtailment of natural gas supplies destined for both European and Asian markets, contributing to the global supply tightness.
US Production, Demand, and Export Landscape
Domestically, the natural gas market presents a mixed picture of supply and demand. According to BNEF data from Monday, US (lower-48) dry gas production stood at 110.4 billion cubic feet per day (bcf/day), representing a +2.8% increase year-over-year. Conversely, lower-48 state gas demand on Monday was reported at 72.9 bcf/day, a decline of -6.8% year-over-year. Estimated LNG net flows to US LNG export terminals on Monday were 20.4 bcf/day, showing a +1.7% week-over-week increase, as reported by BNEF.
However, projections for higher US natural gas production could exert bearish pressure on prices. On February 17, the Energy Information Administration (EIA) raised its forecast for 2026 US dry natural gas production to 109.97 bcf/day, up from its January estimate of 108.82 bcf/day. This revised forecast suggests ample future supply. Current US natural gas production is near a record high, with active US natural gas rigs reaching a 2.5-year high in late February. Baker Hughes reported last Thursday that the number of active US natural gas drilling rigs in the week ending April 3 rose by +3 to 130, though this remains modestly below the 2.5-year high of 134 rigs observed on February 27. Over the past 17 months, the number of gas rigs has steadily increased from a 4.75-year low of 94 rigs reported in September 2024.
Inventory Levels and Electricity Output
Recent inventory data has largely been bearish for natural gas prices. Last Thursday’s weekly EIA report indicated that natural gas inventories for the week ended March 27 rose by +36 bcf. While this figure was in line with expectations, it significantly exceeded the 5-year weekly average draw of -4 bcf. As of March 27, natural gas inventories were up +5.2% year-over-year and stood +3.0% above their 5-year seasonal average, signaling robust natural gas supplies within the US. In Europe, gas storage as of March 31 was 28% full, falling below the 5-year seasonal average of 41% for this time of year.
On a more positive note for gas prices, the Edison Electric Institute reported last Wednesday that US (lower-48) electricity output in the week ended March 28 rose +5.7% year-over-year to 76,162 GWh (gigawatt hours). Furthermore, US electricity output over the 52 weeks ending March 28 increased +1.9% year-over-year to 4,321,501 GWh. Increased electricity generation often translates to higher natural gas consumption, as gas-fired power plants are a significant component of the US energy mix.
The natural gas market continues to navigate a complex interplay of factors, with short-term weather-driven demand providing immediate price support against a backdrop of ample domestic supplies and a tightening global LNG market. The recent rebound highlights the market’s sensitivity to transient weather patterns, even as longer-term supply and demand fundamentals remain in flux.
