US Natural Gas Futures Drop 3.6% on Cooler Weather Forecasts

US natural gas futures settled down 3.6% at $2.682 per million British thermal units as cooler temperature forecasts and soft LNG exports kept the inventory surplus elevated.

US natural gas futures settled down 3.6% at $2.682 per million British thermal units Monday as revised cooler temperature forecasts and soft LNG feedgas kept the inventory surplus from shrinking despite high seasonal power demand.

"Selling has been aided by cooler overnight trends and plunging global oil and gas prices due to optimism there will be positive developments in the U.S.-Iran conflict," NatGasWeather.com said in a note.

The EIA reported a 28 Bcf injection for the week ended July 24, below the consensus of about 35 Bcf and sharply below the year-ago build of 44 Bcf. Inventories now sit at 3,084 Bcf, about 1% below last year but 6.4% above the five-year average. US LNG exports reached 18.0 bcf/day while dry gas output climbed 2.6% year-on-year to 112.5 bcf/day.

The retreat comes as crude prices tumbled more than 5% on optimism over US-Iran negotiations, with WTI sliding toward $80 and Brent into the low-to-mid $80s. For natural gas producers and utilities, the late-stage cooling cycle means weather-driven demand will fade as a price driver in coming weeks, leaving storage levels and LNG export flows to set the tone.

Storage Tightens at the Margin

While the smaller-than-expected injection offered bulls a foothold, Ritterbusch & Associates cautioned that "temperature deviations from normal don't yet appear sufficient to spur much of a price advance from here." The firm added that as the US moves into the late stage of the cooling cycle, "this is beginning to look like a market that can be approached from both sides in the coming weeks as the weather factor diminishes in importance."

The storage trajectory is starting to tighten at the margin. Production remains strong and LNG feedgas elevated, yet the combination of a tighter-than-expected injection and the seasonal peak in cooling demand has given the bulls a foothold. Whether this turn can be sustained hinges on whether a real hot blast drives power-sector demand higher and keeps storage builds restrained.

The summer has been hot over most of the US, but under-performing power-sector consumption and soft LNG exports have kept the inventory surplus from shrinking, NatGasWeather.com noted. That dynamic has left the market searching for a catalyst, with the weather outlook the primary near-term variable.

Cross-Asset Pressure

The broader energy complex is also weighing on natural gas. Crude prices fell more than 5% Monday, with September WTI losing 5.11% and Brent sliding 4.7% to $83.77, as President Trump opted not to proceed with planned strikes on Iran and talks progressed on reopening the Strait of Hormuz. OPEC+ approved a 188,000-barrel-a-day increase for September, while US crude output remains near record territory at about 13.72 million barrels a day, according to the EIA's June outlook.

The slide in crude has removed a source of support for the broader energy complex, even as refiners warn that gasoline and diesel prices could stay elevated because the world has little spare refining capacity. For natural gas specifically, the near-term path depends on weather models over the next several days. If sustained above-normal temperatures materialize across the East, Midwest and South, demand should firm and give the market follow-through. If the heat fades or stays regional, the market will likely struggle to build on last week's constructive storage number.

For producers, the current price environment near $2.68 per mmBtu sits well below the levels needed to incentivize significant new drilling, keeping the focus on cost discipline and hedging programs. For utilities and industrial buyers, the ample storage cushion provides a buffer against supply shocks heading into the autumn refill season, though the persistent surplus above the five-year average suggests prices may remain range-bound until demand catches up with supply.

This article is for informational purposes only and does not constitute investment advice.