Natural Gas News: Short-Covering Lifts Prices Today - But Is It Just a Pause?

Natural gas futures experienced a rise on Wednesday, fueled by traders covering their short positions after a significant price decline. This increase follows a period where prices plummeted from a three-year high on December 5th to a seven-week low on Tuesday. That said, the reality is a bit more complicated. the upward movement appears to be more of a temporary respite than a sign of a genuine bullish trend.

Lingering bearish weather forecasts and a weak fundamental backdrop continue to dampen market sentiment. To drive prices significantly higher, buyers will likely need more than just short-covering.

January futures, after hitting a low of $3.842, have seen a modest recovery. Traders are now watching a potential short-term trading range between that low and $5.496. A key upside target is the 50% retracement level at $4.669, but considerable resistance lies ahead. The initial obstacle is the 50-day moving average at $4.463, followed by the 200-day moving average at $4.695, a crucial trend indicator. Currently, the bounce seems technical rather than based on underlying fundamentals. A substantial price surge will require a stronger catalyst.

Bearish Weather Still a Factor

The recent price drop has largely been driven by weather forecasts. Atmospheric G2 predicts warmer-than-normal temperatures across the western and southern U.S. through December's end.

This forecast has been heavily factored into trading, leading to the price collapse over the past two weeks. Given that the market typically looks 10–15 days ahead, the current warm spell is likely already priced in. Unless colder weather risks emerge for early January, the path of least resistance for prices likely remains downward.

Production and Demand Dynamics

Supply is also exerting downward pressure. Dry gas production in the Lower-48 states reached 111.5 bcf/day on Tuesday, a 7.5% increase year-over-year. The EIA has slightly increased its 2025 production outlook to 107.74 bcf/day. This keeps storage levels well-supplied despite a recent decent draw of 177 bcf reported by the EIA.

U.S. gas inventories are now 2.8% above the five-year average, while European storage is 70% full – below average but still at a comfortable level. LNG export flows have decreased slightly this week. On the demand side, electricity demand has provided some support, rising 2.3% year-over-year in early December.

The Bottom Line

The current short-covering bounce from Tuesday’s lows is primarily driven by market positioning rather than fundamental factors. While resistance levels are well-defined, any rallies are likely to face selling pressure without a solid base of support or a significant change in weather patterns.

The market is expected to remain in a “sell-the-rally” mode until a legitimate cold snap or signs of tightening supply emerge. The trend bias remains bearish, even with the current price recovery.