The Outlook for Stronger Demand Lifts Nat-Gas Prices

October Nymex natural gas (NGV26) on Tuesday closed up +0.023 (+0.79%).

Nat-gas prices finished higher on Tuesday on the outlook for above-average US temperatures, which should boost nat-gas demand from electricity providers as air conditioning use is expected to increase.  The Commodity Weather Group said Tuesday that above-average temperatures are expected across the South and Southeast through September 29.

Monday’s rally in European gas prices to a 3.75-year high also provides carryover support to US gas prices. European nat-gas is soaring as sharply reduced supplies from the Middle East due to the closure of the Strait of Hormuz from the US-Iran war are keeping European nat-gas storage levels well below normal, a bullish factor ahead of winter, when demand typically surges. 

In a bearish medium-term factor for nat-gas prices, the market is expecting a “Super El Niño” to bring warmer-than-normal temperatures to the Northern Hemisphere this fall and winter, reducing heating demand for nat-gas. 

US (lower-48) dry gas production on Tuesday was 111.7 bcf/day (+1.9% y/y), according to BNEF.  Lower-48 state gas demand on Tuesday was 76.2 bcf/day (+3.9% y/y), according to BNEF.  Estimated LNG net flows to US LNG export terminals on Tuesday were 18.8 bcf/day (-2.2% w/w), according to BNEF.

As a positive factor for gas prices, the Edison Electric Institute reported last Thursday that US (lower-48) electricity output in the week ended September 5 rose +19.69% y/y to 100,302 GWh (gigawatt hours).  Also, US electricity output in the 52 weeks ending September 5 rose +3.00% y/y to 4,392,478 GWh.

As a bearish factor, the US Energy Information Administration (EIA) on August 11 projected that US nat-gas storage levels will swell to 3,985 bcf at the end of October, the highest level in 10 years and 5% above the five-year average.  Last Monday, the EIA raised its 2027 US dry natural gas production estimate to 116.0 bcf/day from 115.3 bcf/day projected in July.

Last Thursday's weekly EIA report was bearish for nat-gas prices, as it showed a +40 bcf increase in US nat-gas inventories for the week ended September 4, above expectations of +34 bcf, but below the 5-year weekly average of +52 bcf.  As of September 4, nat-gas inventories were down -2.7% y/y and +4.8% above their 5-year seasonal average, signaling adequate nat-gas supplies. As of September 13, gas storage in Europe was 68% 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 ended September 11 rose by +2 to 132 rigs, just below the 3-year high of 134 rigs set in February 2026.

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. For more information please view the Barchart Disclosure Policy here.