A Short-term Pullback Might Be Coming for Natural Gas

Natural gas prices retreated from a two-year high yesterday, February 21, dropping about 4.2% as forecasts turned warmer across parts of the U.S. Warmer temperatures are expected to reduce heating demand, leading to some profit-taking after a recent rally. However, despite this short-term retracement, natural gas remains well-supported by tightening supplies and expanding export demand.

Yesterday’s EIA report showed that U.S. natural gas inventories were 5.3% below their 5-year average, the tightest supply conditions in over two years. In the Euro Area, gas storage was 43% full as of February 18, lower than the 5-year seasonal average of 53%. At the same time, U.S. LNG export capacity is set to rise following the Trump administration's decision to lift restrictions on new LNG projects. 

With the potential approval of the Commonwealth LNG facility in Louisiana and other projects in the pipeline, demand for U.S. gas exports is expected to increase, providing long-term support to prices. Additionally, electricity demand remains strong, further reinforcing natural gas consumption from utilities.

Technically speaking, #XNGUSD could pull back to the lower edge (around $3.7-$3.6MMBtu) of the upward channel it has been following since August 2024. There is also the possibility that the ongoing peace talks between the U.S. and top gas producer Russia finally evolve into concrete terms. In this case, further downward pressure could be applied to XNGUSD prices.

In any case, the broader long-term outlook remains bullish. Export growth and supply tightness will likely keep prices elevated in 2025. If the price breaks out of the channel to the upside, it would serve as a strong bullish signal.

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