Natural gas posts 3.4% weekly loss as weather cools demand outlook

A shift in weather forecasts has erased summer heat premium from natural gas prices, sending the front-month contract to a 3.4% weekly loss.

U.S. natural gas futures settled at $3.120 per million British thermal units Friday, up 1.1% on the session but posting a 3.4% weekly decline as milder weather forecasts cut power-sector demand projections across the eastern half of the country.

"The remainder of the month is now projected to have near-normal temperatures for everywhere east of the Rockies, a far different picture than we had just a few days ago," said Gary Cunningham, director at Tradition Energy.

The front-month July contract touched $3.082 Monday before recovering to $3.1470 by Tuesday's settlement, Morningstar data show. Prices remain 57.8% below the 52-week high of $7.46 set Jan. 28 and 24.7% above the April low of $2.523. Year-to-date, the contract is down 14.6%, while month-to-date it has fallen 4.35%.

The bearish weather outlook has overshadowed what would normally be a supportive geopolitical backdrop. The U.S.-Iran agreement to reopen the Strait of Hormuz sent crude oil prices lower but had little effect on natural gas, Cunningham noted, as the market focused on domestic demand rather than global supply routes.

A recovery in LNG export flows and a widening storage deficit compared with last year may offer near-term support, said Eli Rubin of EBW Analytics. Higher cooling demand into early July could also provide a floor for prices, he added. However, longer-term headwinds remain significant: an inventory surplus over the five-year average, the absence of sustained summer heat east of the Rockies, and a coming wave of production growth from the Permian basin.

Ritterbusch & Associates noted that the market "is being forced to discount a further bearish tilt to the weather factor while also seeing some negative spillover from the lower oil prices." The firm added that a further increase in export activity that offered some price support earlier in the week is still expected.

The last time natural gas traded near current levels in mid-June was in 2024, when prices averaged around $2.80/mmBtu before a summer heat wave pushed them above $4.00 by August. Whether this year's pattern repeats depends on whether sustained heat arrives east of the Rockies in July and August, a scenario that weather models have yet to confirm.

For now, the market is pricing in a supply-heavy outlook. The Permian basin's associated gas production continues to grow as oil drilling expands, adding to an already comfortable inventory position. The EIA's weekly storage report will be the next key data point, with traders watching for whether the deficit to last year's levels continues to widen or begins to narrow.

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