US natural gas prices dropped sharply, with NYMEX Henry Hub futures declining by 3.4%. This followed Energy Information Administration data revealing a storage increase of 120 billion cubic feet over the past week.

The rise in storage was above market expectations and exceeded the 5-year average increase of 87 billion cubic feet. Total gas storage now stands at 2.375 trillion cubic feet, which is 3.9% higher than the 5-year average.

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With the weekly injection into natural gas storage exceeding both market forecasts and the five-year seasonal average, the immediate pressure on forward prices isn’t entirely unexpected. Current storage levels, now nearly 4% above the five-year norm, add weight to the view that supply remains comfortably ahead of demand as we move closer to peak cooling season.

EIA’s latest read — a 120 bcf build — represents a considerable divergence from markets that had priced in a lower increase. The data suggests a resilient production backdrop, showing that supply-side constraints haven’t materialised despite ongoing maintenance in certain basins. When this is lined up next to muted weather-driven consumption, the short-term bearish pressure on futures seems well-grounded.

Market Implications

For traders with exposure to Henry Hub-linked derivatives, particularly options and calendar spreads, this divergence between expected and actual inventory data ought to matter. What we’re observing is not just a single print outpacing consensus, but rather an accumulation trend in inventories that could undercut bullish seasonal positioning. Those holding long positions in near-term contracts may want to reassess delta and gamma exposure if the pace of injections continues to hold above the historical average.

At the same time, the flattening backwardation curve in the futures strip may not yet fully reflect these changes. Should injection figures continue to overshoot, convexity around contracts in late summer could prompt reassessments in calendar spreads. Vega exposure, particularly in longer-dated options, can behave unpredictably if volatility expectations shift rapidly in response to further surprises in supply data.

Wilkinson and others argue that the current oversupply doesn’t necessarily spell longer-term trouble, but in the near term, it likely alters the risk-reward balance for leveraged strategies. We notice some signs that skew in short-term puts is starting to build slightly, possibly in anticipation of more downside pressure.

This is a period where sensitivity to inventory surprises can generate sharp intraday moves. Hedging instruments should be calibrated to higher intraday variance, especially early in the injection cycle when directional conviction can turn quickly. Staying overexposed with no protection to the downside is unwise. It’s not about exiting the market, but about staying reactive. Let your exposure evolve with the data.

For those trading collars or straddles, consider that high storage volumes reduce the likelihood of price spikes under normal weather patterns. However, abnormal early-summer heat could alter balances, and this asymmetry in outcome merits consideration when structuring strategies that are otherwise premised on calm risk conditions.

Be wary of overcommitting to a directional view based solely on seasonality. While summer often brings weather volatility and implied gas demand, it hasn’t yet translated into storage strain. Without signs of demand uptick from the power sector, or export pull from LNG infrastructure creating consistent draws, even modest bearish catalysts can trigger exaggerated downward moves.

Risk managers and execution traders should pay attention to liquidity conditions around storage report days. With surprises of this magnitude—a 33 bcf gap above the average injection thumbing its nose at consensus—short-term positions can unhinge quickly, especially in thinly traded contracts. Be ready to scale in or out around volume surges.

Expect near-term volumes to remain responsive to weather revisions or unexpected maintenance events, but unless there’s a sustained shift in the shape of the supply-demand curve, the broader trend remains weighted toward continued inventory build. Use that base assumption to recalibrate your margin for error.

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