Natural Gas Downtrend Holds Despite LNG-Backed Bounce Above $2.61

September natural gas tried to rally Friday but could not change the chart. The contract settled at $2.66, up 2.2 cents, after touching a 3.25-month low the previous session. The bounce came from stronger LNG feedgas and a hotter weather forecast, which brought short covering behind Thursday's storage-driven selloff.

It was a real bounce but it has not touched the downtrend.

Estimated LNG feedgas rose to 18.6 billion cubic feet per day Friday, the strongest reading in four weeks. Every unit of gas flowing into export terminals is gas that leaves the domestic system, and that is the best argument buyers have right now.

Europe is part of the reason. European storage was 58% full as of August 4, well below the five-year seasonal average of 74%. Europe enters winter with less gas in the ground than normal, and that keeps the incentive alive for U.S. cargoes.

Weather also gave buyers something to work with. The latest forecast called for most of the country to run hot to very hot over the next seven days, with temperatures reaching the upper 80s to 110s. The Northeast and West are expected to stay above normal through August 12. That pattern lifts gas-fired power generation as utilities burn more fuel to meet air conditioning load.

The market had been waiting for that forecast to show up. Friday it did, and shorts covered. But one forecast update is not a trend. The heat has to last long enough to show up in the weekly supply numbers.

Thursday's EIA report is the problem buyers cannot get around. Natural gas inventories rose by 33 Bcf for the week ended July 31. The market expected 30 Bcf. The five-year average build for the period was 23 Bcf. Inventories stood 6.7% above the five-year seasonal average. The market can bounce on feedgas and a hot forecast for a session. It needs repeated smaller builds to change the argument for the rest of the summer.

Production is not helping. Lower-48 dry gas output was 111.2 Bcf per day Thursday, up 1.8% from a year earlier. The Baker Hughes gas rig count dropped by three to 124 in the latest week, but that is not a number that shifts production expectations.

Then there is the Hugh Brinson pipeline. Energy Transfer said the line reaches its full capacity of 1.5 Bcf per day by September 1. That puts more Permian gas on a direct path to Henry Hub just as the summer cooling season starts to fade. The supply side is adding another source of gas when the market needs demand to carry the entire load.

The longer-term demand story is building, and it is not just LNG. SpaceX plans to construct natural gas power plants for its Terafab semiconductor facility in Texas, with the first phase carrying a price tag near $17 billion. Amazon is doing the same thing in Pecos County, Texas, financing a private gas power plant tied to a new data center campus. SpaceX, Amazon, Google, Meta, Microsoft and Oracle are all part of that push. It creates a domestic demand base that did not exist at this scale a few years ago, but it does not remove the storage surplus sitting on this contract today.

The daily swing chart is unambiguous. A trade through $2.616 signals a resumption of the downtrend. The trend changes to up if buyers take out the last swing top at $2.810. The 50-day moving average sits at $3.019, flat to lower since the market plunged on July 9, and it will shift sharply lower by the end of this month. That brings it closer to the real market and makes it more vulnerable to an upside breakout.

Friday's bounce came from LNG flows and heat. The next storage report is the test. A build below expectations gives the market a reason to hold the bid. A heavy print sends sellers pressing the rally back toward Thursday's lows.

More information in our economic calendar.