Natural gas prices rose on Tuesday after forecasts suggested unusually warm US weather would drive up demand for air conditioning, sending the October Nymex contract (NGV26) up 0.79%. The gain came despite a bearish outlook for winter, with a “Super El Niño” expected to bring warmer-than-normal temperatures across the Northern Hemisphere, cutting heating demand for the fuel.
The Commodity Weather Group said Tuesday that above-average temperatures are expected across the South and Southeast through September 29. That heat should boost demand from electricity providers as air conditioning use increases, giving the market a near-term reason to bid up prices.
But the story does not stop there. European gas prices also rallied to a 3.75-year high on Monday, providing carryover support to US prices. The surge in Europe comes from sharply reduced supplies from the Middle East, where the closure of the Strait of Hormuz from the US-Iran war has kept European storage levels well below normal. That is a bullish factor ahead of winter, when demand typically surges.
The Numbers Behind Tuesday’s Gain
The US (lower-48) dry gas production on Tuesday stood at 111.7 billion cubic feet per day, up 1.9% year over year, according to BNEF. State gas demand on Tuesday was 76.2 billion cubic feet per day, up 3.9% year over year, also according to BNEF.
Estimated LNG net flows to US LNG export terminals on Tuesday were 18.8 billion cubic feet per day, down 2.2% week over week, according to BNEF. Those numbers show production is rising while exports are easing slightly.
The Edison Electric Institute reported last Thursday that US (lower-48) electricity output in the week ended September 5 rose 19.69% year over year to 100,302 gigawatt hours. Over the past 52 weeks, US electricity output rose 3.00% year over year to 4,392,478 gigawatt hours.
Those figures point to strong electricity demand, which is a positive factor for gas prices since power plants burn natural gas to generate electricity.
Ranking the Key Drivers
- Hot US weather driving air conditioning demand — the most immediate driver, pushing prices up Tuesday.
- Colder European winters tightening global supplies — a bullish factor for US prices through carryover effects.
- Warmer winter temperatures in the Northern Hemisphere cutting US heating demand — the longest-term headwind, weighing on prices over winter.
The Bearish Side of the Picture
The EIA on August 11 projected that US natural gas storage levels will swell to 3,985 billion cubic feet at the end of October, the highest level in 10 years and 5% above the five-year average. Last Monday, the EIA raised its 2027 US dry natural gas production estimate to 116.0 billion cubic feet per day from 115.3 billion cubic feet per day projected in July.
Last Thursday’s weekly EIA report was bearish for natural gas prices. It showed a 40 billion cubic feet increase in US natural gas inventories for the week ended September 4, above expectations of 34 billion cubic feet but below the 5-year weekly average of 52 billion cubic feet.
As of September 4, natural gas inventories were down 2.7% year over year and 4.8% above their 5-year seasonal average, signaling adequate natural gas supplies. As of September 13, gas storage in Europe was 68% full, compared to the 5-year seasonal average of 84% full for this time of year.
What the Outlook Means for Traders
Traders now face three competing forces:
- Hotter US weather driving air conditioning demand
- Colder European winters tightening global supplies
- Warmer winter temperatures in the Northern Hemisphere cutting US heating demand
The EIA’s projection of record storage levels by October suggests ample supply, which could cap gains even as demand rises in the near term. The Super El Niño forecast adds a long-term headwind, as warmer winters mean less heating demand for natural gas.
The European situation supports US prices through carryover effects. With European storage running well below normal, the region is drawing on global supplies, which lifts prices globally.
How the Market Weighs These Forces
The market is currently pricing in the near-term demand boost from hot US weather. The EIA inventory data shows that storage is building, which normally would put downward pressure on prices. But the combination of European tightness and the El Niño forecast means traders are balancing multiple signals.
The Edison Electric Institute’s electricity output figures support the demand picture. With power generation up sharply, utilities are burning more gas, which lifts prices in the short run.
The EIA’s production estimates suggest the US can meet rising demand without cutting into stored supplies. The storage projection to 3,985 billion cubic feet by October is bearish, but it does not directly predict a surplus turning into a shortage.
The Bottom Line on Natural Gas
Tuesday’s gain reflects the immediate pull from hot US weather. The European rally provided additional support. But the Super El Niño forecast hangs over the market like a cloud, promising warmer winters that cut heating demand.
For traders, the near-term picture is clearer than the long-term one. US demand is rising now, and European tightness is lifting prices globally. The storage build is a cautionary note, but it has not yet capped prices.
The El Niño effect will matter more in winter. If the forecast holds and winters stay warmer than usual, US natural gas prices could fall even as Europe remains tight.
The market is pricing in a short-term demand spike. Whether that lasts depends on how quickly storage builds and how much European imports draw on US supplies.
Key Facts Box
- NGV26: October Nymex natural gas closed up 0.79%
- Production: 111.7 billion cubic feet per day (+1.9% y/y)
- Demand: 76.2 billion cubic feet per day (+3.9% y/y)
- LNG flows: 18.8 billion cubic feet per day (-2.2% w/w)
- Electricity output: +19.69% y/y to 100,302 GWh (week ended September 5)
- 52-week output: +3.00% y/y to 4,392,478 GWh
- EIA storage projection: 3,985 billion cubic feet by October (highest in 10 years)
- EIA production estimate: 116.0 billion cubic feet per day (up from 115.3 in July)
- Inventory build: +40 billion cubic feet for the week ended September 4
- European storage: 68% full vs. 5-year average of 84%
The takeaway is simple: natural gas prices are rising now because the weather is hot, but the winter forecast is the real wildcard. Traders who buy today are betting the near-term demand spike outweighs the long-term supply glut. Those who wait may find prices already fell by the time winter arrives.
Get the Notebook.
The day's best stories and every fresh verdict, in plain English, in your inbox by seven. One email a day, no more.