Is a Summer Rally on the Horizon in the U.S. Natural Gas Futures Market?
I asked if natural gas prices will remain elevated throughout 2025 in a May 13, 2025, Barchart article. I wrote:
The inventories, rig count, increased LNG demand, and price action during the slow shoulder season point to higher natural gas prices over the coming months. The peak demand season, when prices tend to reach annual highs, occurs in late Q3 and Q4. Given the bullish price trend, buying dips with tight stops could be optimal for natural gas over the coming weeks and months.
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Nearby natural gas futures were at the $3.644 per MMBtu level on May 12, 2025. They were higher at near the $4 level on June 20.
U.S. natural gas futures are in a bullish trend in June 2025.
The daily chart of NYMEX natural gas futures for delivery in August at the Henry Hub shows the bullish price pattern since the April 24 low of $3.394 per MMBtu. The futures were trading at near the $4 level on June 20.
The longer-term chart displays a more significant bullish trend.
The monthly chart shows that natural gas futures have made higher lows and higher highs since trading at a $1.60 low in February 2024. The most recent continuous contract high was $4.908 per MMBtu in March 2025, which was less than half the level at the August 2024 high of $9.987, the highest price since July 2008.
A hot summer will increase natural gas demand
The 2024/2025 withdrawal season ended in March 2025. While natural gas prices tend to reach their highs during winter months, the spring tends to be a weak period for prices, as the shoulder season is when heating and cooling demand fall to annual lows.
As the natural gas market enters the peak cooling season during summer, demand should increase. U.S. natural gas inventories are higher than the five-year average but lower than the same time last year.
As the chart shows, natural gas stockpiles across the United States, at 2.802 trillion cubic feet, were 6.1% above the five-year average for the week ending June 13, 2025. However, they were 7.7% lower than last year's level. The stockpile levels support the price above $4 per MMBtu, but another factor could push prices even higher over the coming weeks and months.
The world's top ten natural gas-producing countries are:The chart indicates that the United States leads the world in natural gas production, followed by Russia in second place and Iran in third. Processing natural gas from a gaseous to a liquid form has increased its reach as LNG travels the world by ocean vessels.
The war between Iran and Israel is escalating in late June 2025, posing significant supply concerns for the LNG market from two perspectives. First, Iran is the third leading producing country, and war in the region has led to attacks on Iran's oil and gas infrastructure. Moreover, Iran's strategic position in the Persian Gulf, and most significantly in the Straits of Hormuz, a logistical chokepoint, could intensify the global LNG supply concerns, leading to higher demand for U.S. LNG and pushing domestic natural gas prices higher.
The most direct route for a risk position in the volatile U.S. natural gas market is the CME's NYMEX division futures and futures options contracts. The futures are highly volatile. Given the margin in the futures arena that increases leverage, the potential for price variance is exceptionally high.
The UNG ETF does an excellent job tracking U.S. natural gas futures on a short-term basis. The latest rally in August natural gas futures took the price 18.7% higher from $3.563 on June 11 to $4.230 per MMBtu on June 20.
Over the same period, UNG rose 15.4% from $15.70 to $18.12 per share. UNG underperformed natural gas futures because they reached their latest high on June 19 and early on June 20, a holiday in the U.S. when the stock market was closed.
Over the same period, the leveraged BOIL ETF product magnified UNG and the natural gas futures' price action.
The chart shows BOIL's 30.7% rally from $48.73 to $63.68 per share from June 11 through June 18.
At $60.90 per share, BOIL had nearly $280 million in assets under management. BOIL trades an average of over 2.86 million shares daily and charges a 0.95% management fee. As BOIL is a bullish, leveraged natural gas product, the KOLD ETF provides market participants with the opportunity for exposure on the short side of the U.S. natural gas market.
As natural gas futures move into the U.S.'s peak cooling season, supply concerns over worldwide LNG supplies have increased because of the ongoing war between Israel and Iran. Natural gas prices rallied to nearly $10 per MMBtu in August 2024. At near $4 in late June 2025, natural gas prices could have substantial upside potential over the coming days and weeks.
Meanwhile, leveraged products like the BOIL and KOLD ETFs require careful attention to risk-reward dynamics. Time and price stops will protect capital if natural gas prices move contrary to expectations or remain stable. Time decay tends to erode BOIL and KOLD prices as the ETF's employ swaps and options to create leverage. Another risk is that while natural gas futures trade around the clock, UNG, BOIL, and KOLD are only available during U.S. stock market hours. The ETF products can miss highs or lows occurring when the stock market is closed.
A summer rally could be on the horizon in the natural gas futures market, which has significant potential, as we saw in August 2024 when the price rose to nearly $10 per MMBtu.
On the date of publication, Andrew Hecht did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com
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