By Rania Gule, Senior Market Analyst at XS.com – MENA
In light of the recent movements in natural gas prices toward $4.017, I believe that what the market is currently experiencing cannot be described as a fundamental trend reversal as much as it is a short-term repositioning driven by technical and psychological factors, rather than a genuine shift in supply-and-demand fundamentals. The rebound from the lowest levels in seven weeks followed a sharp sell-off, a familiar pattern in commodity markets when crowded short positions prompt traders to cover and lock in profits—without necessarily signaling a change in the market’s underlying conviction.
Moreover, the broader picture in the U.S. market remains tilted to the downside. Weather, the primary driver of winter gas demand, has yet to provide the support needed to build a sustainable upward trend. Prevailing forecasts point to above-average temperatures across most key consumption regions through the end of December, a factor that has already been aggressively priced in over recent weeks. This explains the rapid decline from levels above $5 to below $4. While the market typically anticipates weather developments by roughly two weeks, the absence of clear signals for a strong cold wave in early January leaves any current upside fragile and prone to quick reversals.
On the supply side, pressure remains evident. U.S. dry gas production continues to hover near record levels, supported by high operational efficiency and relative stability across major producing basins. This production surplus has kept storage levels above the five-year average despite recent seasonal withdrawals. In my view, this dynamic significantly reduces the winter risk premium that speculators usually rely on to push prices higher at this time of year. As long as inventories remain relatively comfortable, the market is likely to remain skeptical of any rally not backed by a genuine demand shock.
That said, overlooking the role of liquefied natural gas would be an analytical mistake. U.S. LNG exports have become a structural component of the pricing equation rather than a secondary factor. Record feedgas flows to liquefaction facilities provide a price floor for Henry Hub that did not exist years ago, when domestic oversupply exerted unchecked downward pressure. However, this support is conditional on uninterrupted operations. Any disruption—such as the situation at Freeport—immediately weighs on U.S. prices by redirecting surplus gas back into the domestic market at a time when weather-driven demand is insufficient to absorb it.
At the global level, we are effectively dealing with a three-speed gas market. In the United States, prices hover around $4 in an uneasy balance between strong supply and weak seasonal demand. In Europe, prices appear historically low but remain highly sensitive to any changes in weather or supply conditions, particularly given storage levels that are lower than last year. In Asia, the stability of the JKM benchmark near $10 acts as a safety valve for the global market, limiting aggressive cargo competition and preventing the formation of a sudden price bubble. In my opinion, this triangular balance is precisely what is preventing a synchronized global rally at this stage.
Accordingly, I believe the U.S. market continues to operate under a “sell-the-rallies” framework. Any advance not supported by a clear cold wave or a meaningful decline in production is likely to be met with selling—either from producers hedging forward or from traders who view higher prices as unjustified by fundamentals. At the same time, I do not anticipate another sharp collapse unless warm weather persists longer than expected, as LNG exports and industrial demand continue to impose a form of structural price floor.
My near-term outlook is for U.S. natural gas to remain range-bound with a slight downside bias, punctuated by limited technical rebounds that are likely to be sold into. Over the medium term, a genuine bullish shift would require one clear catalyst: a colder-than-expected winter or a significant supply disruption, whether domestically or globally. Until one of these conditions materializes, caution remains paramount, and treating rallies as opportunities for reassessment rather than trend-chasing remains, in my view, the most rational strategy in a market governed by fundamentals more than emotion.