Natural Gas Market Shows Mixed Signals as Weather Forecasts Override Inventory Support

Natural gas futures experienced a notable pullback on Thursday, with February Nymex contracts declining 3.35% as meteorological forecasts pointed toward above-average temperatures sweeping across western and central United States regions over the coming week. Market participants focused on the temperature outlook, recognizing that warmer weather patterns typically suppress heating demand and consequently weigh on nat-gas prices.

The Weather-Driven Sell-Off

Forecasting service WSI published analysis indicating broad regions of above-normal temperatures in the near term. This weather dynamic appears to have overshadowed other market supportive factors, causing traders to reassess their exposure to natural gas positions. The temperature expectations became the dominant driver in Thursday’s trading session.

EIA Data Presents a Bullish Contradiction

Interestingly, Thursday’s Energy Information Administration weekly report delivered what typically would be considered bullish news for the sector. Natural gas inventory levels fell by 119 billion cubic feet last week—exceeding market expectations of a 113 bcf decline and substantially surpassing the 5-year weekly average draw of 92 bcf. This larger-than-anticipated inventory reduction usually signals tightening supplies and supports price appreciation.

However, this supportive inventory signal failed to counterbalance the bearish temperature narrative, highlighting how weather expectations currently dominate price discovery mechanisms in the natural gas market.

Production Resilience Remains a Headwind

Adding to the downward pressure on prices, U.S. natural gas production continues operating near record levels. The EIA elevated its 2025 production forecast to 107.74 bcf/day from the previous estimate of 107.70 bcf/day. Lower-48 dry gas production reached 111.0 bcf/day on Thursday, representing an 8.7% year-over-year increase. Meanwhile, active drilling rigs recently posted 2-year highs, signaling operators’ confidence in continued production expansion.

On the demand side, Lower-48 state gas consumption totaled 88.0 bcf/day, reflecting a 29.5% year-over-year decline consistent with warmer seasonal conditions. LNG export flows to U.S. terminals averaged 19.2 bcf/day, down 1.5% week-over-week.

Global Context and Storage Positioning

As of January 2, natural gas inventories sat 3.5% below year-ago levels while running 1.0% above the 5-year seasonal average, indicating ample supply availability. In contrast, European gas storage facilities showed tighter conditions at 58% capacity compared to the 72% 5-year seasonal average for this period—a regional differential worth monitoring.

The competitive dynamics between ample domestic supplies and favorable inventory positions versus temporary weather-driven demand concerns illustrate the complexity currently characterizing natural gas market sentiment.