August natural gas futures on the New York Mercantile Exchange settled lower on Monday, dropping to a two-month low as signals pointed to heavier US supply and weaker export demand. The contract closed down 1.46%, falling 0.043 per unit, after gains in Permian Basin output and a dip in flows to US liquefied natural gas export terminals raised the near-term supply outlook.
Weather forecasts limited the downside. Commodity Weather Group said its outlook shifted hotter, with above-average temperatures expected across the northern US through July 17, supporting power burn for air-conditioning. Still, traders weighed additional medium-term concerns, including expectations that El Niño could bring warmer-than-normal conditions to much of the Northern Hemisphere during the fall and winter heating season.
Key takeaways
- Price move: August natural gas futures settled down 1.46% on Monday to a two-month low.
- Catalyst: Higher US production and reduced LNG export flows outweighed seasonal weather support.
- Demand offset: Hotter near-term weather forecasts boosted expectations for power-sector gas use through mid-July.
- Medium-term risk: El Niño-linked forecasts could reduce heating demand in the fall and winter.
- Implication: Investors are balancing near-term oversupply indicators with longer-dated tightness risks tied to global LNG supply disruptions.
What drove the move
Monday’s drop was driven primarily by supply fundamentals. According to the report, Permian Basin natural gas production rose to more than 23 bcf per day over the weekend, the highest level in about two months. At the same time, gas flows to LNG export terminals in the US fell, with the article citing Monday’s figure at 17.5 bcf, the lowest level in a month.
Those changes matter because they directly affect how much gas is available for domestic use. When LNG feedgas declines, more supply remains within the US market, which can pressure prices—especially if production is simultaneously increasing.
Market reaction and demand signals
Losses were contained as traders incorporated a short-term demand offset from weather. The Commodity Weather Group forecast described hotter conditions across the northern US through July 17, which would likely lift electricity generation needs and increase gas burn for power generation.
Still, the market faced headwinds beyond the immediate weather window. The article flagged market speculation that a strong El Niño could bring warmer-than-normal temperatures to the Northern Hemisphere in the fall and winter, potentially weakening natural gas demand for heating during a key consumption period.
Supporting data cited in the article also pointed to ample supply fundamentals. According to BNEF, US (lower-48) dry gas production on Monday was 113.2 bcf/day (+5.5% year over year). Lower-48 state gas demand was 77.4 bcf/day (+4.2% year over year), while estimated LNG net flows to US export terminals were 17.5 bcf/day (-5.8% week over week).
Traders weigh storage, rig activity and the outlook for production
The production outlook remains a focal point for the market. The article noted that the US Energy Information Administration raised its forecast for 2026 dry natural gas production to 111.2 bcf/day from a June estimate of 111.0 bcf/day, a change that supports the case for higher future supply and can weigh on medium-term pricing.
Weekly storage also leaned bearish in the near term. In the most recent EIA update referenced by the article, inventories for the week ended July 3 increased by 61 bcf, matching expectations and rising above the five-year weekly average of 51 bcf. The article added that as of July 3 inventories were down 0.8% year over year and 6.6% above the five-year seasonal average, suggesting supplies remain adequate.
On the demand side, the article cited Edison Electric Institute data showing US (lower-48) electricity output in the week ended July 4 rose 7.73% year over year to 100,996 GWh. It also reported higher output over the 52 weeks ending July 4, up 2.33% year over year to 4,345,875 GWh, reinforcing the idea that power-sector demand is active heading into the hotter summer period.
Finally, upstream activity appeared steady. Baker Hughes said the number of active US natural gas drilling rigs in the week ending July 10 remained unchanged at 126, moderately below the two-and-a-half-year high of 134 rigs set in February 2026.
Why global LNG supply still matters
Despite near-term bearish signals, the article highlighted support for natural gas prices from tighter global LNG supply expectations. It pointed to Qatar’s report from March 19 indicating “extensive damage” at Ras Laffan Industrial City, stating that attacks by Iran damaged 17% of the facility’s LNG export capacity. Qatar said repairs would take three to five years, and the article noted that the Ras Laffan plant accounts for about 20% of global liquefied natural gas supply.
In theory, reduced LNG capacity could lift the value of US cargoes over time and support US natural gas pricing through expectations of higher export availability later—an important counterweight to immediate oversupply pressures.
Investors are also tracking inventory conditions outside the US. The article noted that gas storage in Europe was 51% full as of July 8, compared with a five-year seasonal average of 66% full for this time of year, suggesting some geographic tightness, even as US storage trends have not yet signaled scarcity.
Looking ahead, market direction may hinge on whether hotter weather persists into mid-July and on updates to US production and LNG export flows. With EIA reports and weekly storage data continuing to shape expectations for near-term balances, traders will also watch upcoming guidance around the El Niño timeline and any further developments that could affect global LNG supply.
