US natural gas prices experienced a decline as increased inventory levels surpassed the expected demand from weather conditions. The Energy Information Administration reported that natural gas inventories rose last week beyond average market forecasts, pushing total stockpiles to 2.15 Tcf, which is 1.4% above the five-year average.

This marks the second consecutive week of triple-digit inventory builds, with storage transitioning from a 230 Bcf deficit in early March to the current surplus. Weather forecasts have improved with warmer conditions expected in the northern and southern regions of the US.

What we’ve seen over the past two weeks is a relatively quick switch from concern over a growing storage shortfall to now dealing with a surplus. The inventory build wasn’t just larger than expected—it came in clearly ahead of the seasonal trend, implying either demand is starting to take a backseat or injection rates are faster than the market is willing to price in. Whichever way it’s viewed, the fundamentals have shifted.

The move to 2.15 Tcf in storage, now above the five-year average by 1.4%, is not something to set aside. Two back-to-back triple-digit builds speak to either a misjudged demand picture or a stronger-than-anticipated production flow. While early March was defined by a 230 Bcf gap to historical storage norms, we’ve not only closed that gap, but flipped it. That doesn’t happen incidentally.

Forecasters now point to mild conditions across both northern and southern regions, and that undercuts one of the only supports natural gas had recently, which was weather-led demand. Heating needs in the north and early cooling activity in the south aren’t materialising in the way traders might’ve banked on. We should expect models to continue steering sentiment, but at this point more warmth likely translates to weaker consumption.

For gas options and futures, this changes the way we need to look at positioning. Calendar spreads have already started responding, but we believe more realignment is coming. Calendar strips out to winter are best watched for clues on how participants are managing storage strategies and hedging forward. Front month pressure, if these builds remain near current pace, has more room to extend.

From the pricing angle, backwardation that had started to creep in amid late-winter fears is being unwound. We’ve now stepped back from that scenario, and each new injection update becomes less about surprises and more about how steady this surplus begins to look. There’s now little room to support contracts without a major weather deviation or production hiccup. This also places more attention on LNG export flows and any sign of deviation there, as domestic oversupply will increasingly lean on outbound demand to find a balance.

We’re watching volatility measures to see whether this fresh surplus begins to cap implied movement. If warmer outlooks hold, and builds persist at pace, optionality may regress toward a lower vol regime heading into June. But any uptick in Gulf disruptions or pipeline constraints could flip that. It’s not a neutral environment yet, but we’re moving decisively away from near-term scarcity pricing. That’s how the curve is reading it already, and forward traders will have to factor that in.

Reactivity should focus first on storage cadence over the next three reports. If the pattern persists, expect re-pricing over Q3 contracts. Holding optional exposure but reducing delta risk near prompt becomes a more defensive way to approach the next cycle of data releases.