Managed money short positions for NYMEX Henry Hub natural gas futures reached their highest level in over a year on September 26th, signaling bearish sentiment heading into the winter heating season. In hindsight, it’s easy to see why market sentiment soured so much: Lower 48 storage inventories had been trending well above expectations for months, exceeding the five-year average by almost 200 Bcf toward the end of the summer injection season. As demand expectations failed to materialize in an environment of persistent overproduction, trader activity moved in sync with the growing surplus of supply.
Why look at storage?
The EIA’s Weekly Natural Gas Storage Report is the most closely monitored indicator of supply and demand in the U.S. natural gas market. In April, early signs pointed towards a stretch of high demand, driven by growing LNG exports and expectations for strong summer power burn. Sharing these expectations, the EIA forecasted 3.66 Tcf in storage by the end of injection season, 3% below the five-year average. In contrast, BTU Analytics was forecasting Lower 48 storage inventories to reach 3.84 Tcf by the end of November.
As summer progressed, however, storage injections grew with each passing week. Traders monitored the market closely, and sentiment began to shift as concerns about oversupply and weakening demand grew stronger. These concerns were later confirmed when the EIA lowered its forecasts for LNG exports and raised its total dry-gas production forecast. From May to June, storage inventory levels compared to the five-year average increased from 1.4% to 6.7%.
The widening storage spread
Market sentiment turned increasingly bearish as the summer progressed. From May until the end of June, managed money increased their short positions by 27.2%, with the anticipation that prices would fall under pressure from higher supply (see chart above). Front-month Henry Hub subsequently fell by $0.87/MMBtu since the start of May going into August, contrary to pre-summer market expectations that prices would rise from Q1 to Q2. Another precursor to this price drop was the spread between front-month futures contracts and spot markets, as diverging storage levels from the five-year average pushed the market deeper into contango. This complements the EIA’s updated forecasts, which raised total U.S. dry-gas production from 105.2 Bcf/d for Q2 to 107 Bcf/d and slightly lowered demand from 84.8 Bcf/d to 84 Bcf/d over the same May-to-August period.
Storage, spreads, and pricing moving forward
In its latest outlook, the EIA forecasts storage to exit injection season at 3.98 Tcf. BTU Analytics anticipates a similar exit, with our latest forecast averaging 3.95 Tcf for October, thereby putting storage above the five-year maximum of 3.9 Tcf. As demand in 2H25 continues to pick up, prices are forecast to increase from $3.20/MMBtu in Q3 to $3.96/MMBtu in the winter. Storage is predicted to then fall below the five-year average, with the start of 2026 echoing that of 2025.
Before September 26th, CFTC data showed that managed money was cutting back on shorts and adding to longs, signaling it expected stronger demand and less gas moving into storage. The latest EIA storage report, however, still shows a surplus, with the spread at 203 Bcf above the five-year average, it is approaching the 2025 high of 204 Bcf. This has weighed on sentiment and pushed back against expectations for a tighter spread.
Throughout 2025, storage trends have had a relevant influence in futures markets. With higher gas prices expected in 2026, traders should prioritize storage data in their decision making. As seen this summer, the path of storage will likely be the deciding factor in whether bullish price expectations are realized, or the market falls back into a low-price environment.
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