Natural Gas Prices Under Pressure: Oversupply and Weather Create Bearish Momentum

The natural gas market is bracing for further price declines as record inventory builds and milder-than-expected temperatures weaken demand. With U.S. storage levels surpassing seasonal averages and European storage lagging behind historical norms, a bearish outlook is justified—though key rebound triggers remain on the horizon.

Short-Term Pressures: Oversupply and Cooling Demand

The Energy Information Administration (EIA) reported that U.S. natural gas inventories for the week ending June 20, 2025, reached 2,898 billion cubic feet (Bcf), a 7% surplus versus the five-year average. While injections (96 Bcf) exceeded the five-year average (79 Bcf), they lagged year-ago levels, signaling weaker demand.

Weather-driven demand reduction has been a critical factor. Despite isolated heatwaves, such as the Northeast's record-breaking cooling degree days (CDDs) in late June, milder national temperatures have kept gas-fired power generation below expectations. The EIA projects storage could hit 3,932 Bcf by October—179 Bcf above historical norms, amplifying oversupply concerns.

Technical Support Levels and Bearish Catalysts

Natural gas futures (NG) have retreated to $3.26/MMBtu, near their lowest since early 2024. Technical support lies at $3.00/MMBtu, with resistance at $3.74. A sustained breach below $3.00 could trigger further declines.

Bearish catalysts include:
- Storage saturation risks: If inventories exceed 4,000 Bcf, producers may cut output to avoid storage constraints.
- LNG export volatility: European buyers have reduced U.S. LNG purchases as their storage recovers, limiting export demand growth.

Long-Term Dynamics: Production Resilience and Global Supply Chains

Despite a 25% year-over-year decline in U.S. rig counts, shale fields continue to boost output via efficiency gains. The Permian Basin and Haynesville Shale are driving record production of 106–107 Bcf/d, underscoring supply-side resilience.

Meanwhile, global LNG markets face headwinds:
- Russia's reduced pipeline gas to Europe has been offset by U.S. LNG, but Middle Eastern geopolitical tensions (e.g., Iran-Israel conflict) add uncertainty.
- Asian demand remains tepid, with China's LNG imports down 25% year-on-year in Q1 2025.

European Storage: A Key Rebound Indicator

European gas storage, at ~60% as of July 5 (per GIE data), lags behind the 90% November target set by EU regulations. While storage injections accelerated in June (+11 Bcf), levels remain 23% below 2024's pace, creating vulnerability to winter demand.

Bullish triggers include:
- A storage rebound to 80% by October (historical peak season norms), signaling demand stability.
- Geopolitical shocks, such as Russian supply cuts, which could reignite European LNG demand.

Investment Strategy: Short-Term Bearish, Monitor Rebound Signals

• Positioning: Maintain a bearish bias with short positions in inverse ETFs like DGAZ or NG futures.
• Technical watch: Track the $3.00/MMBtu support level and weekly EIA storage reports. A surprise drawdown or heatwave could spark a temporary rebound.
• Long-term opportunities: Consider long LNG infrastructure plays (e.g., Cheniere Energy) if prices stabilize near $3.50/MMBtu by year-end.

Conclusion

The natural gas market is in a supply-driven bear cycle, with oversupply pressures dominating near-term prices. However, investors should remain alert to European storage trends and weather shifts, which could catalyze a rebound by late 2025. Until then, a cautious, short-oriented stance is prudent.

Data sources: EIA, Gas Infrastructure Europe (GIE), and market analysis reports.