Natural gas posts first weekly gain in weeks, as storage surplus falls
The September Henry Hub contract expired this week, making October the new prompt contract. After several weeks of declining prices, gas has turned higher, with October posting a 21c gain to finish at $2.997/MMbtu. Winter ‘25/’26 gained 15c to settle at $3.82/MMbtu and Summer ’26 closed at $3.78/MMbtu, up 13c. The inventory surplus shrank to the lowest level in several weeks, but strong supply and continued bearish weather could result in balances loosening again soon.
The EIA reported an injection of 18 Bcf, which was well-below market expectations and smaller than the five-year average injection. This put storage levels 154 Bcf above average, compared to +174 Bcf last week. This is the lowest surplus level since earlier this summer. This bullish data release led to a sharp rally in prices on Thursday, but data for the next two weeks may not be as positive. In addition to temperatures forecast to be mostly below the ten-year average, production levels have been very strong.
Lower-48 gas production averaged 107.8 Bcf/d this week, according to S&P data. This is the highest weekly average level of this summer so far. Large year-over-year gains in supply have been one of the primary reasons for the rapid build in inventories this summer and may continue to weigh on near-term balances.
While we anticipate the gas market remaining well-supplied into the start of winter, our modeling continues to show a steep drawdown in inventories by the start of next summer. This is primarily driven by stronger LNG feedgas demand. Based on this, we remain bullish on gas prices in 2026 and 2027.
Natural Gas Factors
Price Trend. (Bearish, Priced In) Prompt prices have moved lower this summer, but the Winter '25/'26 seasonal strip, Summer '26, and Winter '26/'27 have remained strong and even trended higher.
S&D Balance. (Mostly Bullish, Priced In)
Storage Level. (Mostly Bearish, Priced In) The storage level is a bearish priced-in factor due to the high levels of gas in inventories relative to the five-year average. According to the latest EIA weekly natural gas inventory report, the surplus to the five-year average stands at 171 Bcf above the five-year average but 153 Bcf below last year.
Associated Gas Production.(Bearish, Priced In) Growth in associated gas production will be much slower than has beeen seen over the past few years, at least until the second half of 2026. Pipeline capacity out of the Permian Basin will begin to grow again next year, likely filling relatively quickly. These new Permian pipes should enter servicce around the same time as projects which will reroute gas around Houston, towards the border of Louisiana.
LNG Outages. (Bearish, Surprise) Feed-gas levels are at their near max capacity, and if there's any unplanned maintenance event or an outage, it may act as a surprise bearish factor for natural gas prices.
Slow Supply Response (Haynesville). (Bullish, Surprise) If production remains near where it is currently and does not grow into winter, this would be a bullish factor for gas prices. As production growth in the Permian and Northeast should be relatively constrained by pipeline capacity until the second half of 2026, the Haynesville will likely be the primary engine of production growth in the near-term. After being flat through most of 2025, Haynesville production and drilling activity has begun to increase this summer. Production is now up about 1.5 Bcf/d from the start of the year, but remains down from levels seen two years ago.
LNG Schedule. (Bullish, Surprise) With a significant amount of new LNG feedgas demand coming this year and the next few years, if these facilities startup sooner than anticipated it should be a bullish factor for gas prices. One example of this occuring is the recent startup of Plaquemines LNG, which saw feedgas levels reach more than 1 Bcf/d much sooner than anticipated.
Hedge Activity. (Bearish, Priced in) With prices for next winter and beyond continuing to trend higher, producers have been hedging into the strength of forward prices.
Hope. (Bearish, surprise) Market participants have been bullish on Winter '25/'26 and beyond for some time, given the expected rise in LNG feedgas demand. A lack of materialization of this bullish narrative could see winter prices deflate significanlty. Either a delay to LNG schedules, a warmer winter, or strong production growth could result in a repricing of these contracts.
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