Heat Wave Sends Natural Gas Prices Skyrocketing Amid Supply Squeeze

Natural gas futures prices surged on Monday by their largest one-day gain in over two months due to hotter-than-expected weather forecasts for the central and southern United States. The Commodity Weather Group's forecast prompted a scramble in the market, with electricity demand expected to rise and power plants burning more gas as a result.

The supply of natural gas is already tightening, with Gulf Coast LNG export flows reaching a one-month high. This has led to a genuine supply-demand squeeze, causing futures prices to react immediately.

Money managers had built up the largest net-short position in Henry Hub futures since 2020, but when prices started climbing, they were forced to buy back their short positions to limit losses. This buying pushed prices even higher, creating a feedback loop known as short-covering.