Natural gas futures slip below $2.77 as supply outweighs demand

U.S. natural gas futures slipped below Monday's $2.77 close Tuesday, continuing a pattern of alternating daily gains and losses as solid domestic production and soft LNG feedgas volumes offset high seasonal power-sector demand.

"The scale of the sell-off seems fairly overdone, given that there's still considerable uncertainty," ING analysts said in a note, as the broader energy complex digested conflicting signals from the Strait of Hormuz.

Natural gas closed at $2.77 Monday, up 0.87 percent, before reversing lower Tuesday. The move comes as the energy complex navigates a volatile geopolitical environment. Brent crude rose 0.7 percent to $84.39 a barrel in early Asian trading Tuesday after plunging 7 percent Monday, while WTI gained 0.7 percent to $80.95 after falling more than 5 percent. Treasury yields fell across the curve, with the 10-year note at 4.68 percent, as falling oil prices and easing geopolitical concerns drew buyers.

The natural gas market's direction hinges on whether LNG feedgas volumes recover as summer cooling demand peaks. With OPEC+ raising output by 188,000 barrels per day from September and the Strait of Hormuz situation unresolved, energy prices across the complex face competing supply and geopolitical pressures.

The seesaw pattern in natural gas reflects a market where supply fundamentals remain firmly in control. Domestic production continues at solid levels, while LNG feedgas volumes have been soft, limiting the export pull that has historically supported prices. At the same time, seasonal power-sector demand from air conditioning load provides a floor under prices during the summer months.

The broader energy complex is wrestling with a different set of dynamics. President Donald Trump said Monday that talks with Iran were under way and that the Strait of Hormuz could reopen "literally by tomorrow," triggering a sharp selloff in crude. Brent plunged 7 percent to a three-week low before rebounding Tuesday as traders questioned whether a diplomatic breakthrough was actually imminent.

Iran has publicly disputed the US account. Foreign Ministry spokesman Esmail Baghaei said there were no negotiations with Washington and no meetings had been scheduled. Tehran has said its only ongoing discussions are with Oman over managing traffic through the strait.

Shipping data shows the fragility. Kpler data shows three tankers and three bulk carriers transited the strait Monday, down from seven the previous day. In peacetime, more than 100 ships would typically transit per day. The UK Maritime Trade Operations reported a cargo vessel struck by an unknown projectile about 20 nautical miles northeast of Oman's Al Khasab on Tuesday.

Hormuz Shipping Slows to a Trickle

The stakes are high because Hormuz is a critical artery for global energy supplies. Before the conflict, roughly a fifth of global oil consumption and a significant share of liquefied natural gas shipments passed through the waterway connecting the Persian Gulf with the Gulf of Oman. More than 80 percent of the energy moving through Hormuz is destined for Asian markets, leaving countries such as India, China, Bangladesh and Pakistan vulnerable to a prolonged disruption.

Barclays analysts estimate crude and refined product net exports through the Strait of Hormuz averaged 4.2 million barrels per day in the week ending July 31, up from 3.2 million barrels per day a week earlier. But shipping activity continues to be vulnerable, with reports of vessel attacks and growing caution among operators.

The Red Sea is adding another layer of uncertainty. Six Saudi-flagged supertankers recently altered course in the Gulf of Aden and are heading around southern Africa after threats from the Iran-backed Houthi movement against Saudi shipping. At the same time, two tankers carrying Saudi crude have crossed the Bab el-Mandeb Strait, suggesting some vessels are still willing to use the route despite heightened security risks.

"As long as there are these openings to move barrels around, I think this on-off can continue," said Carolyn Kissane, associate dean at New York University's Center for Global Affairs. "Iran doesn't want to escalate but does want to keep up the tension, and there will be more attacks after this market retreat."

OPEC+ Adds 188,000 bpd as Disruptions Mount

OPEC+ agreed Sunday to increase its oil production quota by around 188,000 barrels per day from September, but additional supply has not necessarily translated into greater availability because of disruptions affecting the Gulf, Russia and Kazakhstan. In the Black Sea, attacks linked to the Russia-Ukraine war have added to concerns over the resilience of global energy flows, with large refineries, oil tankers and major pipeline infrastructure targeted at least 30 times in July, according to Bloomberg.

For natural gas traders, the immediate question is whether the seesaw pattern will resolve into a sustained trend. The market has been caught between solid production and soft LNG feedgas on the supply side, and high seasonal power demand on the demand side. Until LNG export volumes recover meaningfully, natural gas prices are likely to remain rangebound, with any geopolitical shock to the broader energy complex providing the most likely trigger for a breakout in either direction.

This article is for informational purposes only and does not constitute investment advice.