Natural gas futures rise 1.1% on July heat and cooling demand outlook

Hotter July weather forecasts are pushing natural gas futures higher as traders position ahead of contract settlement, though rising production is keeping gains in check.

U.S. natural gas futures rose 1.1% to $3.268 per million British thermal units Monday, as hotter July weather forecasts boosted expected cooling demand while rising production capped gains. The front-month Nymex contract touched an intraday high of $3.289 before settling.

"Tension between intermittent bullish heat and bearish supply gains may remain central in the summer," Eli Rubin, an analyst at EBW Analytics, said in a note. "Building heat aligning with seasonality and technicals imply a test of resistance as traders position ahead of July final settlement."

The move extends a 2.8% gain from last Thursday, when the Energy Information Administration reported a 73 billion cubic feet injection to storage for the week ended June 12, below the 80 bcf consensus estimate. Working gas in storage stands at 2,578 bcf, 0.1% below the same week last year and 5.7% above the five-year average.

The July contract expires June 26, leaving five trading sessions for final positioning. Weather forecaster Vaisala expects above-normal temperatures across most of the lower 48 U.S. states from June 28 to July 2, a pattern that could sustain elevated demand from power generators running air-conditioning units. The 30-day range for the front-month contract spans $2.70 to $4.84 per MMBtu, with the current price near the midpoint.

Short Positioning Adds a Rally Risk

Hedge funds boosted their net-short natural gas futures position by 10,726 contracts to 34,059 in the week ended June 9, the most bearish stance in more than two years, according to the Commodity Futures Trading Commission's weekly Commitment of Traders report. An excessively concentrated short position creates the potential for a short-covering rally if prices break above technical resistance, adding upside momentum beyond what weather fundamentals alone would justify.

The futures curve reflects the seasonal demand pattern. December 2026 contracts trade at $4.032 per MMBtu and January 2027 at $4.424, a winter premium of more than $1 over the front month. The contango from August through October — with prices between $3.221 and $3.263 — suggests traders see limited upside through the shoulder months before winter heating demand lifts prices.

Supply Growth Tempers the Bull Case

U.S. dry natural gas production has averaged 104.5 bcf per day in June, up from 103.2 bcf per day in May, according to S&P Global Commodity Insights data. The supply increase has kept a lid on prices even as storage injections run below year-ago levels. The EIA's weekly storage report showed inventories at 2,578 bcf for the week ended June 12, compared with 2,581 bcf a year earlier.

The last time the front-month contract traded above $3.50 was in late March, when it reached $3.513 before sliding to a 52-week low of $2.893 on April 30. The 24.6% decline from the December 2025 high of $4.408 reflects the market's struggle to absorb rising production amid mild winter demand. Whether the current heat-driven rally can sustain above $3.30 will depend on how quickly storage injections catch up to the five-year average in the weeks ahead.

This article is for informational purposes only and does not constitute investment advice.