Dollar Weakness Spurs Short Covering in Nat-Gas Futures

September Nymex natural gas (NGU25) on Tuesday closed up +0.021 (+0.78%).

Sep nat-gas prices on Tuesday settled higher as a weaker dollar spurred some mild short covering in nat-gas futures.

Natural gas prices have been under pressure over the past 2.5 months and dropped to a 9.5-month nearest-futures low on Monday on forecasts for cooler late-summer weather.  Forecaster Vaisala on Monday said lower-than-normal temperatures will blanket the US from North Carolina to Northern California for September 4-8, which will reduce demand for nat-gas to run air conditioning.

Ramped-up US nat-gas production is another bearish factor for prices.  On August 12, the EIA raised its forecast for 2025 US nat-gas production by +0.5% to 106.44 bcf/day from July’s estimate of 105.9 bcf/day.  The EIA raised its forecast for 2026 US nat-gas production by +0.7% to 106.09 from July’s 105.4 bcf/day forecast.  US nat-gas production is currently near a record high, with active US nat-gas rigs recently posting a 2-year high.

US (lower-48) dry gas production on Tuesday was 107.3 bcf/day (+4.5% y/y), according to BNEF.  Lower-48 state gas demand on Tuesday was 73.9 bcf/day (-10.7% y/y), according to BNEF.  Estimated LNG net flows to US LNG export terminals on Tuesday were 14.9 bcf/day (+8.2% w/w), according to BNEF.

As a supportive factor for gas prices, the Edison Electric Institute reported last Wednesday that US (lower-48) electricity output in the week ended August 16 rose +7.1% y/y to 99,160 GWh (gigawatt hours), and US electricity output in the 52-week period ending August 16 rose +2.7% y/y to 4,264,139 GWh.

Last Thursday’s weekly EIA report was bullish for nat-gas prices since nat-gas inventories for the week ended August 15 rose +13 bcf, below the consensus of +18 bcf and well below the 5-year weekly average of +35 bcf.  As of August 15, nat-gas inventories were down -3.0% y/y, but were +5.8% above their 5-year seasonal average, signaling adequate nat-gas supplies.  As of August 24, gas storage in Europe was 76% full, compared to the 5-year seasonal average of 84% full for this time of year.

Baker Hughes reported last Friday that the number of active US nat-gas drilling rigs in the week ending August 22 was unchanged at 122 rigs, just below the 2-year high of 124 rigs posted on August 1.  In the past year, the number of gas rigs has risen from the 4-year low of 94 rigs reported in September 2024.

On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com