July natural gas futures on the New York Mercantile Exchange settled up Tuesday, gaining 0.092 (or 2.92%) to close higher. The rally was driven by a shift toward hotter weather forecasts in the United States, supporting expectations for stronger power-sector demand for air conditioning.
Prices also found additional support from data pointing to improving U.S. natural gas export activity and an increasingly crowded positioning profile among hedge funds, which can amplify short-covering moves in futures.
Key takeaways
- Price move: July natural gas futures closed up 2.92% on Tuesday.
- Catalyst: Weather forecasts turned hotter across the western U.S., with Commodity Weather Group noting above-average temperatures expected through June 30.
- Supply/demand impulse: U.S. LNG flows to export terminals jumped, indicating firmer foreign demand.
- Positioning tailwind: The latest Commitment of Traders data showed funds holding a large net-short position, raising the risk of a sharper rebound if prices continue to firm.
- Implication: Near-term price action appears sensitive to weather and export flows, even as inventory and production forecasts remain mixed.
What drove the natural gas rally
The immediate spark for Tuesday’s move was a hotter U.S. weather outlook. According to the Commodity Weather Group, forecasts shifted warmer, with above-average temperatures expected across the western U.S. through June 30. Warmer conditions typically increase electricity demand, which in turn can boost natural gas burn rates for power generation.
Beyond weather, market participants cited improving export momentum. Data compiled by BNEF showed natural gas flows to LNG export terminals on Tuesday rose 11.4% week-over-week to 19.6 bcf/day. The report also noted the effect of seasonal maintenance ending at export terminals, allowing exports to resume.
Finally, positioning likely played a role in the magnitude of the rebound. The weekly Commitment of Traders report for the week ended June 9 showed funds increased their short natural gas futures position by 10,726 to 34,059 net-short, the most in more than two years. When markets turn against heavily short positioning, rallies can accelerate due to short covering.
Underlying fundamentals: production, demand and storage
Tuesday’s fundamental read was mixed, but the export picture helped offset concerns around supply adequacy. BNEF data showed U.S. (lower-48) dry gas production at 109.7 bcf/day, up 2.7% year-over-year. Lower-48 gas demand was reported at 68.3 bcf/day, up 1.6% year-over-year.
Storage dynamics continued to influence sentiment. The EIA’s weekly report for the week ended June 5 showed natural gas inventories rose by 108 bcf, higher than expectations of +100 bcf and above the five-year weekly average of +95 bcf. Inventories were still down 0.8% year-over-year, but 6.0% above the five-year seasonal average, pointing to ample supply.
Europe’s storage also remained relatively well supplied. As of June 9, storage in Europe was 43% full compared with a 57% five-year seasonal benchmark for the same time of year.
Supply outlook signals divergence
On the medium-term view, some analysts have argued natural gas prices have support from a tighter global LNG backdrop. The article noted risks tied to Qatar’s Ras Laffan Industrial City, where Qatar said attacks damaged about 17% of Ras Laffan LNG export capacity. According to the report, the affected capacity is expected to take three to five years to repair, and the Ras Laffan plant is cited as accounting for roughly 20% of global LNG supply.
The report also highlighted that closures tied to the war in Iran have constrained natural gas flows to Europe and Asia via the Strait of Hormuz, which could strengthen demand for alternative supply sources.
Counterbalancing those factors, forecasts calling for higher U.S. output have been a headwind for prices. The EIA raised its estimate for 2026 U.S. dry natural gas production to 111.0 bcf/day from a May forecast of 110.6 bcf/day.
Power burn data has offered some support. The Edison Electric Institute reported that U.S. (lower-48) electricity output in the week ended June 6 rose 2.13% year-over-year to 83,866 GWh, and electricity output over the 52 weeks ending June 6 increased 2.25% year-over-year to 4,341,775 GWh. Higher generation tends to support gas demand, particularly when temperatures rise.
On the drilling side, Baker Hughes said active U.S. natural gas drilling rigs fell by 3 to 121 in the week ending June 12, an eight-month low and well below a February 2026 level of 134.
What investors are watching next
With the rally tied closely to weather and export flows, traders will likely monitor near-term forecast updates for summer demand signals and continued LNG outlet performance. Additional market sensitivity may come from further EIA inventory data releases and new guidance on production growth, as well as any incremental updates on global LNG supply risks referenced in the Ras Laffan disruption narrative.
