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U.S. natural gas prices continued to fall during the week that ended May 21, pulled down by light weather, weak demand, and strong inventories. However, the near-term outlook remains cloudy, signs are emerging that a significant rebound could be taking shape in the background — setting the stage for a potential breakout in the second half of the year.

During the week, natural gas and futures prices fell across most of the major hub. A combination of reduced demand for heating and cooling, robust inventory injections, and a short-term reduction in LNG export volumes contributed to the downward pressure. Maintenance activity at the key export terminals Cameron, Freeport, Sabine Pass, and Cheniere’s Corpus Christi, along with pipeline work like Kinder Morgan’s Permian Highway, further constrained production and transportation capacity, cementing the natural gas supply glut story.

The Energy Information Administration (EIA) said another robust build in natural gas storage, well above seasonal standards. Inventories are running significantly above the five-year average — albeit still below year-ago levels — as a reminder of the modest demand for natural gas in today's weather-driven environment.

Along with market fundamentals, US tariffs on steel and aluminum continue to be a cost drag for LNG producers. With increasing construction costs, developers of new export projects are getting innovative in coping with the squeeze — such as buying more materials in the US, taking on infrastructure investors as joint owners, and securing long-term sale contracts prior to making final investment decisions. Though these tariffs haven't halted progress, they've created additional layers of complexity on already pricey projects.

While price action was weak, traders and analysts are paying attention to a change of tone. There has been a recent technical trend of a higher swing low, indicating that prices could have hit a bottom. Market players are looking at the possibility of a breakout if weather gets hotter over the next few weeks — a reasonable expectation as summer is approaching. Any increase in cooling demand can happen rapidly and tighten the natural gas demand supply equation.

Meanwhile, future demand will surge. New LNG terminals will be coming on-stream, and U.S. natural gas shipments to Mexico and international markets are projected to reach all-time highs in the next two years. In the meantime, producers — particularly those in the Haynesville shale — have been wary, refraining from bringing on new drilling even with higher future prices. This production discipline is helping to fuel increased expectations that the market may turn into undersupply by 2026.

Although natural gas prices have dipped over the short-term, the groundwork for a recovery is in place. With a tightening global natural gas market, rising LNG demand, and slowing production growth, most expect the current weakness to be fleeting. If weather reverses and buyers come back, U.S. natural gas may be on the verge of a strong bounce — perhaps sooner rather than later.