Natural Gas Bounce Fails as Storage Surplus and Weak Demand Persist

Natural gas futures bounced off a three-month low last week after the EIA storage number missed expectations. The rally ran out of gas before the week ended. September futures settled at $2.792, down $0.116 or 3.99% for the week. The contract hit $2.870 at the high and $2.666 at the low.

The EIA reported a 28 Bcf injection for the week ended July 24. That was nine below the 37 Bcf estimate. Working gas rose to 3,084 Bcf, 6.4% above the five-year seasonal average. Stocks are 32 Bcf below last year. The five-year comparison is the one sellers are leaning on. 185 Bcf above normal is not the kind of number that makes anyone nervous about supply.

One tighter build forces short-covering. It takes a string of them to convince the market the surplus is actually shrinking. Thursday's EIA report is the next test. Buyers need the number to miss again by enough to show that August heat is doing real work on the storage picture. A comfortable build puts the $2.666 low back in play.

The weather forecast turned warmer across the western half of the country through mid-August. Texas and the Plains are running extreme temperatures. Gas-fired power demand stays elevated where the heat is strongest. That has kept the market from falling apart. It has not been enough to turn it around.

The Midwest, Great Lakes and Northeast are where this trade gets decided. Those regions keep getting cooler breaks and storms that cut air-conditioning demand before it can build. This has been the pattern since June. A few hot days in the East would change the tone fast. The forecast has to hold long enough to pull storage builds below normal for more than one week. A brief burst that fades before the next EIA report does not help.

Lower-48 dry gas output was running above 112 Bcf per day late last week. Demand sat well below that. The EIA expects U.S. production to average more than 111 Bcf per day in 2026. Baker Hughes has the rig count at 127, below February's high of 134 but enough to keep the wells producing. Nobody is shutting in gas at these prices.

LNG feedgas near 18 Bcf per day keeps a floor under the market. European storage below its five-year average heading into winter means the continent still needs U.S. cargoes. The export bid prevents the bearish case from going completely one-sided. Feedgas is steady, not surging. Steady does not tighten a domestic market that is producing this much gas into a weak demand picture.

September natural gas futures hit a multi-month low last week at $2.666. There was a technical bounce on the daily chart. It was not strong enough to shift momentum on the weekly chart. A trade through this level will reaffirm the downtrend.

The trend is down according to the weekly swing chart and the 52-week moving average. Two swing tops at $3.326 and $3.375 are resistance. The 52-week MA is at $3.545.

The short-term range is $3.375 to $2.666. It has created retracement zone resistance at $3.021 to $3.104.

Taking out $2.666 will signal a resumption of the downtrend. The nearest target on the weekly chart is $2.280.

Until the trend changes to up, sellers are likely to remain in control. Rallies are likely to be limited by retracement zone resistance, swing tops and the 52-week moving average.

Thursday's EIA report is the number that decides whether the bounce from $2.666 has a second week in it or fades. Another miss below expectations and buyers start building a case that the summer surplus is peaking. A comfortable build and the market goes right back to the low. The weather forecast is the other catalyst. A hotter Midwest and East Coast heading into the second week of August would force sellers to rethink the power-burn outlook. Another cooler revision tells them the pattern that has held all summer is still intact.

The weekly trend is down with resistance stacked well above the market. The bounce off the lows confirmed a reversal pattern on the daily chart. The weekly chart has not shifted. The retracement zone overhead is where sellers are likely to reload. The market needs the weather and the storage data to line up at the same time before this recovery becomes anything more than another counter-trend trade inside a downtrend.

Baker Hughes reported the rig count at 127, down from February's high of 134. The count is still high enough to sustain production above 112 Bcf per day. For the full Baker Hughes picture, see the BKR stock page. For more on natural gas positioning, read Natural Gas: 207K Shorts Face Heat Test as Front-Month Holds Support.