U.S. Natural Gas Futures: Assessing Market Sentiment Ahead of Key Storage Data Release

The U.S. natural gas market is navigating a complex interplay of supply, demand, and speculative positioning as traders brace for the upcoming EIA storage report. With storage levels currently elevated and production hitting record highs, short-term traders must carefully assess market sentiment and position risk to capitalize on potential volatility.

Market Sentiment: A Mixed Signal from CFTC Data

According to the latest CFTC COT report, non-commercial (speculative) traders held a net short position in natural gas futures as of the previous reporting period. This bearish stance contrasts with the long positions held by commercial entities, which are typically large hedgers such as utilities and energy producers. These hedgers have increased their net longs, suggesting anticipation of stronger demand, particularly in the power sector, where consumption has risen by 7% week-over-week, according to AGA indicators.

The divergence between speculative and commercial positioning underscores a tug-of-war in market sentiment. While speculators bet on continued oversupply, hedgers are preparing for tighter fundamentals as winter approaches. This dynamic creates a volatile backdrop, where price swings could be amplified by unexpected data releases.

Storage Levels and the Looming Data Event

The EIA reported that working gas in storage stood at 3,561 billion cubic feet (Bcf) as of September 26, 2025, reflecting a 53 Bcf net increase from the prior week in its EIA weekly storage report. This level is 6.1% above the five-year average and 21 Bcf higher than the same period in 2024, according to the EIA Short-Term Outlook. Such elevated storage levels typically weigh on prices, as they indicate ample supply. However, the market's reaction hinges on expectations.

Natural Gas Intelligence (NGI) had projected an injection of 64 Bcf for the week ending September 26, per NGI's estimate, implying that the actual 53 Bcf build was slightly below expectations. While this discrepancy may seem modest, it could signal a slowdown in supply accumulation, potentially supporting a short-term price rebound. Traders should monitor whether this trend continues in the next report, as a sustained deviation from the five-year average could trigger a reevaluation of winter demand assumptions.

Trading Strategies: Navigating Volatility

Given the tight balance between supply and demand, short-term traders should adopt a cautious approach. Here are key strategies:

1. Positioning Ahead of the Storage Report:
2. Bullish Case: A smaller-than-expected storage build (e.g., 40–50 Bcf) could spark a rally, as it would suggest stronger-than-anticipated demand or production declines. Traders might consider buying call options or initiating long futures positions ahead of the report.

3. Bearish Case: A larger build (e.g., 70+ Bcf) would reinforce oversupply concerns, favoring short positions or put options.

4. Risk Management:

5. Stop-Loss Orders: Given the potential for sharp price swings, traders should set stop-loss levels based on recent volatility. For example, a 5% stop-loss could limit downside risk if the market reacts negatively to the data.

6. Diversification: Pairing natural gas trades with correlated assets (e.g., crude oil or power contracts) can hedge against sector-wide risks.

7. Seasonal Considerations:

8. The EIA forecasts a faster-than-normal withdrawal of inventories during the winter of 2025–2026, driven by rising LNG exports and flattening production, according to a Zacks analysis. Traders should remain alert to seasonal shifts, particularly as storage levels approach the upper end of the five-year range.

Conclusion: A Delicate Balance

The U.S. natural gas market is at a critical juncture. While current storage levels and production trends suggest a bearish bias, the interplay of speculative positioning, power sector demand, and LNG export dynamics introduces significant uncertainty. Traders must remain agile, using the COT report and storage data as barometers for sentiment shifts. As the EIA's next storage report approaches, the market's reaction will likely set the tone for near-term price action.