Due to ample domestic natural gas supply and declining expectations for export demand, hedge funds have turned bearish on the U.S. natural gas market for the first time since 2024. According to data released by the U.S. Commodity Futures Trading Commission (CFTC), in the week ending May 26, fund managers’ net positioning in seven benchmark Henry Hub natural gas contracts shifted from a net long of 15,270 contracts the previous week to a net short of 11,316 contracts. This marks the first time since 2024 that hedge funds have collectively bet on a decline in U.S. natural gas prices. Short-only positions increased by 19,639 contracts that week, reaching 437,598 contracts, the highest level in more than two years. The U.S. benchmark Henry Hub natural gas price has fallen approximately 10% year-to-date.
Market analysts believe that mild weather, which has weakened demand for heating and power generation, is a significant factor suppressing natural gas prices. At the same time, U.S. natural gas production remains robust, pushing inventory levels above historical averages. Compared to the overall upward trend in global energy markets, the U.S. natural gas market appears notably “decoupled.” Affected by the war in Iran, international crude oil and other energy prices have generally risen, but the U.S. domestic natural gas supply continues to be in surplus. Industry insiders point out that as international oil prices rise, shale oil producers in Texas have increased crude oil extraction, and since natural gas is a byproduct, its production has risen in tandem, further exacerbating supply pressures. In West Texas, in particular, severe oversupply has driven local natural gas prices briefly into negative territory, indicating that storage and transport capacity are nearing their limits.
U.S. natural gas prices have recently seen a staged rebound. The latest government inventory report shows that last week’s increase in domestic natural gas storage was below market expectations, forcing some hedge funds that had heavily shorted positions to cover, thereby driving a rapid price increase. As a result, U.S. natural gas futures for July delivery rose about 10% that week, marking one of the largest single-week gains in recent times. Market participants believe that although short covering has pushed prices higher in the short term, in the medium to long term, the U.S. natural gas market still faces multiple pressures, including supply surpluses, slowing export demand, and weather uncertainty, suggesting that price trends will likely remain highly volatile.
In April, the International Energy Agency (IEA) stated that due to ongoing conflicts in the Middle East and infrastructure damage continuously disrupting supply, global natural gas markets will remain tight for the remainder of the year and beyond. Despite new production capacity coming online, the war has delayed the much-anticipated glut of liquefied natural gas (LNG) supply. The impact of this capacity expansion, largely driven by the United States, has been postponed by “at least two years,” according to the IEA.
The IEA indicated that the combined effect of recent supply losses and slower capacity growth could lead to a cumulative LNG shortfall of approximately 120 billion cubic meters between 2026 and 2030. Affected by rising prices, mild weather, and policies restricting consumption, demand in major importing countries has already softened. Under tight supply conditions, several Asian countries are turning to fuel substitution and demand-side measures to limit natural gas use. The IEA stated, “Demand-side responses will be key to balancing the global natural gas market.”
