Natural Gas Futures: Bearish Outlook Amidst Abundant Supply 📈
Natural Gas futures experienced a volatile week, touching new 9-month and 52-week lows before finding some modest recovery towards the end of the trading period. The overall market context remains influenced by strong supply dynamics, which we will analyze through the lens of key data points.
Commitment of Traders & Positioning Analysis
The latest Commitments of Traders (COT) report, current as of August 12, 2025, provides crucial insight into market sentiment. Non-Commercial traders, often seen as speculative, have significantly increased their short positions by 21,222 contracts, while also adding 17,941 contracts to their long side in NYMEX Natural Gas futures. This net increase in short exposure suggests a growing conviction among speculators that prices are likely to decline further. Conversely, Commercial traders, typically involved in hedging their physical exposure, reduced both their long and short positions, with a slightly larger decrease in their short positions (-10,383 contracts) compared to their long positions (-8,752 contracts). While still net long, this indicates a slight reduction in their overall net bullish stance. The divergence, with speculators leaning more bearish and commercials adjusting, highlights the ongoing pressure from the supply side.
Key Fundamental News
Fundamental data released this past week largely supported a bearish outlook. The Energy Information Administration (EIA) notably raised its forecasts for US natural gas production for both 2025 and 2026, indicating expectations for continued abundant supply. Specifically, the 2025 forecast was increased to 106.44 bcf/day, and the 2026 forecast to 106.09 bcf/day. Current US dry gas production is near record highs, reported at 109.9 bcf/day (+7.3% year-over-year) as of August 15. Further supporting this supply-driven narrative, active US natural gas rigs have reached a two-year high, suggesting that the upward trend in production capacity is set to continue. While demand in the Lower-48 states saw a modest year-over-year increase, and weather forecasts turned mixed (some warmer trends in the west, cooler in the east), the sheer volume and growth of supply continue to weigh heavily on the market.
Open Interest & Volume Trends
Total open interest for NYMEX Natural Gas futures increased by 10,564 contracts from August 5 to August 12, reaching 1,618,091 contracts. This increase in open interest, particularly as prices experienced a sharp decline early in the week, indicates that new short positions were being initiated, rather than existing ones simply being closed out. For the October '25 contract (NGV25), open interest also showed a steady increase through the week. High trading volume was observed, especially on days with significant price movements, such as August 12 when prices dropped by 4.65% with 124,028 volume. The subsequent bounce on August 15, also accompanied by substantial volume (104,153), could suggest some short-covering or opportunistic buying at the lows.
Seasonality
Historically, August typically shows a slightly positive bias for Natural Gas futures. The Natural Gas Oct '25 seasonal returns indicate that August has historically seen positive returns in 56.25% of the observed months, with an average return of 0.050. Although this suggests a potential seasonal uplift as the market approaches the higher volatility of the late fall and winter heating season, the current supply overhang might temper this historical tendency.
Closing Outlook
Considering the confluence of factors, the Natural Gas market is poised with a bearish to neutral bias for the upcoming week. The overwhelming fundamental picture of high and increasing production, reinforced by the EIA's revised forecasts, forms the primary driving force. The Commitment of Traders data supports this, showing that large speculators are adding to net short positions in many key contracts. The rising open interest indicates conviction, but that conviction largely seems aligned with the prevailing downward pressure from supply.
For long opportunities, traders would need to see strong, unexpected shifts in demand—perhaps a prolonged and widespread heatwave boosting cooling demand beyond current forecasts, or a significant, sustained increase in LNG exports. Any rally in prices, particularly if it appears to be short-term or driven by minor weather shifts, may present an opportunity for short-sellers.
From a short perspective, the market seems more favorable. The robust supply fundamentals provide a strong underpinning for continued bearish sentiment. Any upward price movements could be viewed as strategic entry points for commercial entities looking to hedge future production, or for non-commercial traders to re-establish short positions at more attractive levels. The existing net short positioning and increasing open interest suggest that many market participants are betting on further price depreciation.
​
Trade smart,
Joseph O.
SmartMoneyTrade.com
What’s Next?
Join me on X (@AlienInvestor) for daily futures trade ideas: x.com/AlienInvestor. Grab my free COT Cheat Sheet at cot.smartmoneytrade.com to master these insights. Reply with your trading goal—I’ll send a tailored tip!
​