U.S. natural gas prices, tracked by the United States Natural Gas Fund LP UNG, are on pace to extend their winning streak to four sessions on Friday as the combination of lower-than-expected inventory builds and increased demand due to persistent heat reversed the bearish trend that dominated the market since June.

The Henry Hub front-month futures rose 1.3% to $2.15 per million British thermal units (MMBtu), setting the stage for the highest close since July 23.

Jodi Shafto, editor and senior natural gas reporter at NatGas Intel, observed that natural gas prices found room to rise during the Aug. 1-8 trading period. “Against a backdrop of solid demand, possible production cuts, and potentially modest August storage injections, natural gas forward prices moved higher,” Shafto wrote.

On Thursday, the U.S. Energy Information Administration (EIA) reported a 21 billion cubic feet (Bcf) injection into natural gas storage for the week ending Aug. 2. This figure came in slightly below market expectations and well under the five-year average build of 38 Bcf. The modest build pushed total inventories to 3,270 Bcf, which is 248 Bcf above the year-earlier level and 424 Bcf over the five-year average.

Despite the rise in storage, the report revealed gas storage levels were 14.9% above the five-year average — a decrease from 39% above in March and 19% in June.

Focus Shifts To Supply

NatGas Intel highlighted the market’s positive reaction to the lighter-than-average build emphasizing that supply remains a critical focus for traders and they expect weak production going forward further stimulating prices.

In response to the nearly 40% drop in natural gas prices over the past two months, major U.S. producers are planning to reduce output further in the latter half of 2024.

EQT Corp. EQT, the largest natural gas producer in the Lower 48 states, along with Chesapeake Energy Corp. CHK, announced they would wait for prices to improve before ramping up production activity.

However, Eli Rubin, a senior analyst at EBW Analytics Group, commented, “Shutting-in production due to low prices is more ‘less bearish’ than ‘overtly bullish,’ as the market attempts to manage oversupply.” While production cuts could help balance the market, they may not necessarily lead to a significant price rally.

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Weather Forecasts Provide Support

Despite recent trends toward milder weather, the weather outlook for natural gas prices remains favorable, according to NatGasWeather.

“Near-term forecasts indicate cooler temperatures for the next seven days in the Midwest and Eastern U.S., with widespread rain expected from the remnants of former Hurricane Debby. While these regions are predicted to experience highs in the 70s to lower 80s, hotter conditions are expected to persist in the western and southern parts of the country, with temperatures ranging from the 80s to 100s,” the company wrote.

NatGasWeather also noted sweltering heat is not yet exhausted for much of the country for the long term. Although fewer cooling-degree days are expected, the overall weather patterns for the eight- to 15-day period remain bullish, potentially continuing to support natural gas prices.

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This image was created using artificial intelligence MidJourney.