Anticipated Heat Waves Across the United States Lead to Increased Natural Gas Costs
In a surprising turn of events, natural gas prices rebounded on August 4, 2025, despite an increase in US natural gas production and drilling rigs. This recovery was mainly due to weather-driven demand and export support, providing short-term price momentum that overcame supply pressures.
Key factors explaining this price recovery include weather premiums, export support, and a technical bounce. Hot temperatures in Texas and the Southwest increased cooling demand, supporting natural gas prices despite weak fundamentals. Continued strong LNG exports add demand on US natural gas, withholding prices from deeper drops. After a sustained June selloff, natural gas futures reached technical support levels and rebounded, indicating a short-term price correction rather than a fundamental reversal.
However, this recovery is constrained by significant factors limiting a sustained rally. US natural gas production remains near record highs, contributing to ample supply. Power sector demand remains subdued, with only a modest year-on-year rise insufficient to balance increased supply. Inventories are above the five-year average and growing, pressuring prices downward overall. Meteorological forecasts predicting less extreme heat later in summer reduce the weather premium's impact, limiting upward price momentum.
The initial natural gas prices on Friday moved lower due to strength in US natural gas output and higher expectations for US natural gas production. The increase in natural gas prices was due to a shift in US weather forecasts towards warmer conditions, which would boost natural gas demand for air conditioning. Nat-gas inventories as of July 18 were down -4.8% year-over-year but were +5.9% above their 5-year seasonal average.
In the past ten months, the number of gas rigs has risen from the 4-year low of 94 rigs reported in September 2024. The number of active US natural gas drilling rigs in the week ending July 25 rose by +5 to a nearly 2-year high of 122 rigs, according to a weekly report from Baker Hughes.
It's important to note that all information and data in this article are for informational purposes only. The Edison Electric Institute did not have positions in any of the securities mentioned in the article.
References:
- [Link to reference 1]
- [Link to reference 2]
- [Link to reference 3]
- [Link to reference 4]
The rebound in natural gas prices on August 4, 2025, can be attributed to the influence of weather premiums, export support, and technical bounce, as the hot temperatures in Texas and Southwest increased cooling demand, pushing prices upward. Yet, the industry's finance sector and energy market are cautious, as US natural gas production remains high, inventory levels are above the five-year average, and power sector demand is subdued, impeding a sustained rally.
