Warmer US Weather Forecasts Trigger Natural Gas Decline to 2.25-Month Lows

Natural gas futures took a significant downturn on Friday, with February Nymex natural gas contracts finishing the session -0.068 lower, representing a -1.84% drop. This decline extended the week’s bearish momentum, pushing prices to their lowest point in more than two months. The pullback reflects market concerns that milder-than-typical weather patterns expected across the United States could dampen heating fuel consumption while simultaneously lifting storage reserves.

Weather Outlook Pressures Heating Demand

Atmospheric forecasters signaled substantial warming across major US population centers. For the January 7-11 window, much warmer-than-normal conditions are anticipated to blanket the eastern two-thirds of the nation. Following this pattern, the north-central United States is expected to experience elevated temperatures during January 12-16. These weather conditions threaten to erode natural gas demand from the heating sector, traditionally a seasonal driver of consumption during winter months. Simultaneously, higher temperatures reduce pressure on gas storage facilities to meet demand, potentially allowing inventory levels to build further.

Production Remains at Historic Highs

Supply-side dynamics continue to weigh on price sentiment. The US Energy Information Administration revised its 2025 production forecast upward in early December, raising the estimate to 107.74 bcf/day from 107.70 bcf/day previously. Lower-48 dry gas production on Friday registered 110.0 bcf/day, reflecting a +4.4% year-over-year increase. Active US natural gas drilling rigs recently posted a 2-year high, signaling continued expansion in extraction capacity.

Demand Picture Shows Modest Growth

Despite production strength, demand indicators presented mixed signals. Lower-48 state gas demand on Friday totaled 101.0 bcf/day, up just +0.3% on a year-over-year basis. US electricity output provided some support, with weekly generation rising +2.3% y/y to 85,330 GWh for the week ended December 6. Over a 52-week rolling period, electricity generation climbed +2.84% year-over-year to 4,291,665 GWh, offering modest tailwinds for gas-fired power generation consumption.

LNG Export Flows and Inventory Status

Liquefied natural gas net flows to US export terminals reached 19.6 bcf/day as of Friday, up +1.9% week-over-week. On the storage front, the EIA’s weekly report revealed nat-gas inventories for the week ending December 26 declined by -38 bcf, below the -51 bcf market consensus and substantially lighter than the 5-year weekly average draw of -120 bcf. As of December 26, gas inventories sat -1.1% below year-ago levels but held +1.7% above their 5-year seasonal average, suggesting adequate supply buffers remain in place. Meanwhile, European gas storage as of December 31 filled just 62% of capacity compared to a 74% 5-year seasonal average for this period.

Rig Count Signals Continued Production Support

Baker Hughes data indicated active US natural gas drilling rigs in the week ending January 2 decreased by -2 to 125 rigs, remaining modestly below the 2.25-year high of 130 established on November 28. Despite the recent pullback, rig counts have rebounded substantially from September 2024’s 4.5-year low of 94, underscoring persistent investment in gas production expansion and providing ongoing downward pressure on prices as supply capacity expands.