Natural Gas Prices Forecast: Rising Production and Mild Weather May Weigh on Market

What to Know

• U.S. natural gas storage builds remain well above average, signaling oversupply.
• Daily production near 107 Bcf continues to pressure prices despite a slight drop in rig count.
• Mild temperatures across key regions are limiting cooling demand.
• Unless summer heat intensifies or production eases, bearish sentiment may persist into June.
• Key technical levels could either cap further downside or trigger a short-term rebound.

Natural Gas Market Struggles to Maintain Support as Oversupply Builds

Natural gas futures closed the week near $3.334, ending flat despite a late-week rebound driven by a warmer short-term weather outlook. Yet beneath this surface-level stability lies a market increasingly shaped by bearish fundamentals. Strong domestic production, high storage injections, and weak weather-related demand are keeping upside momentum firmly capped.

Storage Data Highlights Market Imbalance

The latest report from the U.S. Energy Information Administration (EIA) showed a significant 120 billion cubic feet (Bcf) build in working gas inventories for the week ending May 16. This injection outpaced both the five-year average of 87 Bcf and analysts’ expectations, reinforcing concerns of an oversupplied market.

Total working gas in storage reached 2,375 Bcf, now 3.9% above the five-year average. While this narrows the year-on-year storage deficit to 12.7%, it signals a growing cushion that may weigh on prices as the industry transitions into the higher-demand summer season.

U.S. Production Remains Elevated, Offsetting Support from LNG and Exports

Natural gas production across the Lower 48 states averaged a hefty 107 Bcf/day last Friday—an increase of 4.7% compared to the same time last year. Despite a slight decline in the number of active gas-directed rigs (down by 2 to 98), this production pace remains robust.

This strong supply is particularly concerning when regional markets like the Permian Basin see spot prices dip into negative territory, highlighting infrastructure constraints and localized gluts.

Exports via liquefied natural gas (LNG) terminals and pipelines to Mexico continue to provide a steady outlet for some of the excess gas. However, the pace of growth in these segments hasn’t been fast enough to offset the production surge, leaving domestic inventories vulnerable to further builds.

Weather Forecasts Offer Temporary Relief but Lack Conviction

A modest shift in the National Oceanic and Atmospheric Administration’s (NOAA) forecast for May 28–June 1 helped spark a short-covering rally on Friday, hinting at the potential for increased cooling demand.

Electricity generation rose 2.5% year-over-year for the week ending May 17, according to the Edison Electric Institute. This could suggest more natural gas will be used in power generation moving forward.

However, this optimism is tempered by continued below-average temperatures across major population centers in the East and Midwest. Highs across these regions remain in the 50s to 70s Fahrenheit—hardly enough to ignite substantial demand for air conditioning and the gas needed to fuel it.

In the West and South, where temperatures have been hotter, the growing presence of solar energy is curbing demand for gas-fired electricity, creating yet another headwind for prices.

Technical Levels Define Key Resistance and Support Zones

From a technical standpoint, natural gas futures remain in a consolidation zone. The key pivot level sits at $3.538. A breakout above this resistance could spark some bullish momentum, possibly opening the door to a move toward $3.840. However, such a breakout would shift momentum, not necessarily change the longer-term trend.

On the downside, support rests at the 52-week moving average of $3.123, with the next major support at $3.035. A decisive break below $3.035 could trigger another leg lower, but oversold conditions and a sudden change in weather patterns could just as easily prompt a short-covering rally. Traders should be cautious when shorting into weakness, especially during the transitional spring-to-summer period when weather-driven volatility is common.

European Storage Trends Offer Limited Spillover Support

While Europe’s gas storage is currently only 45% full—below its five-year average of 56%—this has had minimal impact on U.S. prices. Global gas markets remain broadly well-supplied, and any potential arbitrage opportunities are not strong enough at this point to lift North American benchmarks meaningfully.

Bearish Outlook Likely to Continue Without a Shift in Fundamentals

As it stands, the fundamentals suggest further downside pressure for natural gas. Storage injections continue to exceed seasonal norms, and the market has yet to see any meaningful contraction in production. Cooling demand remains muted across key U.S. regions, and solar power is gaining an increasing share of the energy mix in the South and West.

Unless a major heat wave develops to increase air conditioning usage or U.S. producers significantly scale back output, the natural gas market is likely to remain under pressure in the coming weeks. LNG exports and cross-border pipeline flows help absorb some of the excess, but they are not sufficient to singlehandedly correct the imbalance.

For now, all eyes will be on weather trends heading into June and the next EIA storage report. A surprise in either could shift sentiment temporarily, but the overarching narrative is one of oversupply and lackluster demand.

Outlook

Natural gas continues to face structural challenges driven by a production-heavy landscape and disappointing demand signals. While short-term technical bounces are possible—especially if weather conditions turn hotter—the prevailing trend remains under pressure. Unless there’s a notable shift in either demand or supply fundamentals, prices may struggle to maintain current levels, let alone rally.

Traders and market watchers should remain vigilant, focusing on upcoming EIA data and weather developments, which will be crucial in determining whether the bearish trend persists or begins to unwind.