Natural gas tests $2.70 as supply strength caps rebound

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Natural gas tests $2.70 as supply strength caps rebound

Storage surplus limits upside

The latest EIA report showed a 28 billion cubic feet injection for the week ended July 24, taking Lower 48 inventories to 3,084 Bcf. The build was below market expectations of approximately 38 Bcf, initially supporting prices. Nevertheless, stocks remain 185 Bcf, or 6.4%, above the five-year average, although they are 32 Bcf below the corresponding 2025 level. South Central inventories fell by 9 Bcf, indicating strong regional cooling and export demand, but the nationwide surplus continues to provide a substantial buffer. The August 6 storage report is the next major catalyst, with another restrained injection needed to strengthen the bullish case.

Record production offsets summer demand

Cooling demand remains supportive, and gas consumption by the U.S. power sector is expected to average 42.2 Bcf per day this summer, 0.5 Bcf per day above the same period in 2025. However, dry-gas production is projected to reach a record 111.25 Bcf per day in 2026, limiting the price effect of stronger electricity use. LNG exports are forecast to rise to 17.4 Bcf per day from 15.1 Bcf per day in 2025, creating a more durable source of demand. Slower U.S. GDP growth, which eased to an annualized 1.5% in the second quarter, presents a secondary risk to industrial consumption, but weather, production and LNG feedgas flows remain the dominant short-term drivers.

Weather outlook drives near-term volatility

Temperature forecasts for August 10-14 remain central to market positioning. Extended heat across major U.S. population centers would raise air-conditioning demand, restrict storage injections and help natural gas defend $2.68. A cooler shift would have the opposite effect, particularly with inventories already above seasonal norms. Weather-model revisions can produce sharp price swings, but a sustained recovery would require persistent heat alongside stable LNG demand or interruptions to domestic production.

Hormuz talks reduce risk premium

The Middle East war remains more influential for European and Asian gas benchmarks than for Henry Hub, but disruptions to LNG transit through the Strait of Hormuz increase demand for alternative U.S. cargoes. Before the conflict, almost 20% of global LNG supply passed through the strait. Negotiations involving Iran, Oman and the U.S. could restore shipping, although normal flows have not resumed and maritime security remains uncertain. Reopening Hormuz would reduce international gas prices and weaken some export-related support for Henry Hub.

Renewed escalation, as I warned in Natural gas remains vulnerable as $2.70 support comes under pressure, could intensify competition for U.S. LNG and create upside risk despite abundant domestic supply. The near-term outlook remains bearish below $2.76, with $2.68 serving as the pivotal support level.

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