Natural Gas Storage Divergence: A Catalyst for a Price Rebound?

The U.S. natural gas market finds itself at a critical crossroads. As of June 2025, working gas inventories stood at 2,476 Bcf, a figure 4% above the five-year average but 11% below year-ago levels. This divergence between historical norms and current reality could be the spark for a long-awaited price rebound. Let's dissect the data and its implications.

The Storage Conundrum: Historical Context vs. Present Reality

Natural gas storage levels have long been a bellwether for price direction. The latest EIA report highlights a key divergence: while stocks remain comfortably above the five-year average, they are significantly lower than 2024's levels. This is not merely a statistical quirk—it reflects a market in flux.

Historically, storage trends have followed seasonal patterns: drawdowns during winter and builds during spring/summer. But recent data shows a break from this script. For instance, in 2023, storage rebounded strongly to 3,476 Bcf by year-end, only to dip to 3,413 Bcf in 2024. Now, in 2025, the May 23 injection of 101 Bcf aligns with seasonal norms but falls short of 2024's pace, leaving inventories 316 Bcf lighter than last year.

Why the Divergence Matters: Supply and Demand Dynamics

Three factors underpin this divergence:

1. Slowing Drilling Activity: The U.S. natural gas rig count has plummeted to 98 rigs, down sharply from 120+ in 2024. This decline reflects reduced capital allocation to gas-focused drilling, as producers prioritize higher-margin oil and renewables. With fewer rigs, supply growth is constrained.
2. Strong LNG Exports: Despite a slight dip to 15.7 Bcf/d in May, LNG exports remain robust. Global demand, particularly from Asia and Europe, continues to underpin U.S. exports, siphoning off domestic supply.
3. Resilient Demand: Power generation and industrial use remain steady. Even as summer approaches, cooling demand could amplify drawdowns, tightening an already constrained market.

The Price Picture: Undervalued or Overcorrected?

Natural gas futures at $3.557/MMBtu (July 2025 contract) are near multi-year lows. This price reflects skepticism about demand recovery and ample global LNG supply. However, the storage divergence suggests a potential mispricing:

• Supply Risks: The rig count decline implies production growth could stall, exacerbating the inventory shortfall if demand holds.
• Export Leverage: Strong LNG demand could keep exports elevated, further draining domestic supplies.
• Winter Prep: The market is pricing in a mild winter, but weather surprises often drive price spikes.

Investment Implications: Positioning for a Rebound

The storage divergence creates a compelling contrarian opportunity:

1. Long Futures: Consider taking a long position in Henry Hub futures (e.g., NYMEX HG25) with stop-losses below $3.00/MMBtu. A price rebound to $4.50–$5.00/MMBtu could materialize by late 2025.
2. ETF Plays: The United States Natural Gas Fund (UNG) tracks futures prices. For downside protection, short-dated call options on UNG could offer leveraged exposure.
3. Infrastructure Plays: Companies like Enbridge (ENB) and Kinder Morgan (KMI) benefit from higher gas prices through pipelines and storage assets. Their dividends and growth profiles add stability.

Risks to the Thesis

• Weather: A mild winter or cooler-than-expected summer could dampen demand.
• Global LNG Surplus: Oversupply from Qatar, Russia, or Australia could keep international prices depressed.
• Rig Count Recovery: If drillers pivot back to gas, supply could surge.

Conclusion: Divergence as a Buying Signal

The storage data tells a clear story: inventories are tighter than last year, even if they exceed the five-year average. With supply growth faltering and demand resilient, the market is primed for a price correction. Investors who act now could capitalize on what looks like an undervalued asset class. The storage divergence isn't just a data point—it's a roadmap to profits.

Act now, but with caution. Monitor weekly EIA reports closely, and be ready to exit if rig counts rebound or LNG surpluses overwhelm the market. The natural gas rebound may be underway—don't miss the train.