Natural gas futures retreated from a six-week high on Tuesday, settling 2.30% lower after the U.S. Energy Information Administration (EIA) raised its domestic production estimate for 2026. June Nymex natural gas (NGM26) closed at a loss of $0.067, reversing earlier gains driven by hotter weather forecasts that had lifted demand expectations.
EIA Raises 2026 Production Outlook
The EIA on Tuesday revised its 2026 U.S. dry natural gas production forecast upward to 110.61 billion cubic feet per day (bcf/d), up from its April estimate of 109.60 bcf/d. The revision signals that domestic output remains near record levels, a factor that typically weighs on prices. Active U.S. natural gas drilling rigs reached a 2.5-year high in late February, though the count has since edged down to 129 rigs as of May 8, according to Baker Hughes.
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Abundant storage continues to cap price gains. As of May 1, U.S. natural gas inventories stood 6.7% above the five-year seasonal average, according to the EIA’s weekly storage report. The weekly injection of 63 bcf was below market expectations of 72 bcf and the five-year average of 77 bcf, offering a mildly bullish signal, but not enough to offset the larger supply picture.
Weather-Driven Demand vs. Supply Overhang
Tuesday’s early price strength came from updated weather models showing above-average temperatures across the western half of the U.S. through May 16, according to the Commodity Weather Group. Warmer weather typically boosts natural gas demand from electricity providers as air conditioning usage rises. However, the production forecast overshadowed those near-term demand expectations.
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Lower-48 state gas demand on Tuesday was measured at 68 bcf/d, up 10.0% year-over-year, according to BloombergNEF. Meanwhile, dry gas production stood at 108.6 bcf/d, up 1.8% year-over-year. LNG net flows to U.S. export terminals were 17.5 bcf/d, up 0.8% week-over-week.
Global Supply Risks Offer Medium-Term Support
Despite the bearish domestic supply picture, several global factors could support prices in the medium term. The ongoing closure of the Strait of Hormuz, a critical chokepoint for Middle Eastern energy exports, has curtailed natural gas supplies to Europe and Asia. This disruption could boost demand for U.S. LNG exports as buyers seek alternative sources.
Additionally, damage at Qatar’s Ras Laffan Industrial City, the world’s largest natural gas export plant, continues to constrain global LNG supply. On March 19, Qatar reported that attacks by Iran had damaged 17% of the plant’s LNG export capacity, with repairs expected to take three to five years. Ras Laffan accounts for roughly 20% of global LNG supply, and the reduced output creates a structural opportunity for U.S. exporters.
Conclusion
Tuesday’s price decline reflects the market’s immediate reaction to the EIA’s higher production forecast, which reinforces the narrative of ample domestic supply. However, the interplay between near-term weather-driven demand, record storage levels, and persistent global supply risks from the Middle East and Qatar means natural gas prices are likely to remain volatile. Traders will watch weekly storage reports and weather updates closely for the next directional catalyst.
FAQs
Q1: Why did natural gas prices fall despite hot weather forecasts?
The EIA’s upward revision of 2026 U.S. production estimates outweighed the demand boost from hotter weather. Traders focused on the longer-term supply outlook rather than short-term weather patterns.
Q2: How does the Strait of Hormuz closure affect U.S. natural gas?
The closure curbs Middle Eastern gas supplies to Europe and Asia, potentially increasing demand for U.S. LNG exports. This could provide medium-term price support for domestic natural gas.
Q3: Are U.S. natural gas inventories still above average?
Yes. As of May 1, inventories were 6.7% above the five-year seasonal average, signaling ample supplies. However, the latest weekly injection of 63 bcf was below market expectations, which offered a mildly bullish counterpoint.
