Heatwave Outlook Drives Natural Gas Futures Upward

August Nymex natural gas (NGQ25) rose by 0.093 dollars, or 3.11%, on Tuesday.

Natural gas prices surged sharply on Tuesday as forecasts predicted hotter weather across the United States, prompting short covering in the market. Vaisala noted that above‑normal temperatures are expected for the West and East from August 8‑12, increasing demand for electricity and, consequently, for natural gas‑fired air‑conditioning.

Gas prices fell to a three‑month low on Monday following milder weather forecasts and a rise in domestic production. Moreover, expectations of continued production gains have pressured prices, as Baker Hughes indicated that active drilling rigs increased by five to 122 — the highest level in nearly two years and up from a four‑year low of 94 rigs reported in September 2024.

BNEF reported that dry gas production in the Lower‑48 states reached 108.1 billion cubic feet per day, a 3.2% increase year‑over‑year. Daily demand matched at 86.0 bcf/day, up 7.1% YoY. Additionally, estimated net flows to U.S. LNG export terminals averaged 15.3 bcf/day, reflecting a 2.6% rise week‑over‑week.

Higher U.S. electricity generation typically boosts natural gas demand from utilities. The Edison Electric Institute noted that weekly electricity output in the Lower‑48 rose 2.1% year‑over‑year to 99,373 GWh during the week ending July 19, and cumulative output over the past 52 weeks increased 2.4% to 4,251,059 GWh.

The latest weekly Energy Information Administration report was supportive of higher prices, showing a 23‑billion‑cubic‑foot increase in inventories for the week ending July 18 — below both the consensus estimate of 27 bcf and the 5‑year average of 30 bcf. Inventories were down 4.8% year‑over‑year but 5.9% above the 5‑year seasonal norm, indicating sufficient supply. European gas storage stood at 66% capacity as of July 22, compared with the 5‑year average of 74% for this period.

Baker Hughes confirmed that active U.S. natural gas drilling rigs rose by five to 122 in the week ending July 25, marking a near‑two‑year high and continuing a ten‑month upward trend from the four‑year low of 94 rigs reported in September 2024.

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