Warmer Weather Pressures Natural Gas Prices Despite Strong Inventory Drawdown

February Nymex natural gas contracts closed Thursday with losses of 0.118 points, representing a 3.35% decline as market sentiment shifted toward near-term supply concerns. The primary headwind came from meteorological forecasts indicating above-average temperatures across western and central US regions over the coming week—a development that typically reduces heating-demand pressure on natural gas markets.

Weather Forecasts Drive Short-Term Weakness

Meteorological analysts from WSI highlighted that broad temperature anomalies are expected to persist across multiple US zones in the near term. Above-normal temperature patterns typically translate into reduced consumption of natural gas for residential and commercial heating purposes, creating headwinds for price appreciation. This weather dynamic ultimately overwhelmed other supportive market signals on Thursday’s trading session.

Supply Side Remains Robust Despite Price Pressure

The EIA’s weekly inventory report, released Thursday, revealed larger-than-expected stockpile reductions. Natural gas storage declined by 119 bcf during the latest reporting week—exceeding both market forecasts of 113 bcf and historical averages. However, this bullish inventory signal failed to support prices as the market grappled with other bearish factors.

Production levels continue to support downward price pressure. The Energy Information Administration raised its 2025 natural gas production forecast to 107.74 bcf/day (up from the prior November estimate of 107.70 bcf/day), reflecting an industry operating near historical production peaks. Lower-48 state dry gas production reached 111.0 bcf/day on Thursday, up 8.7% year-over-year according to Bloomberg NEF data.

Demand Weakness Reflects Seasonal and Weather Patterns

Demand-side metrics painted a softer picture for the natural gas market. Lower-48 gas consumption registered 88.0 bcf/day, representing a 29.5% year-over-year contraction according to BNEF. This significant decline underscores the seasonal demand softness exacerbated by above-normal temperature forecasts. LNG export terminal flows totaled 19.2 bcf/day, down 1.5% week-over-week.

Inventory Position Signals Adequate Supply

As of January 2, natural gas storage inventories were running 3.5% below year-ago levels but remained 1.0% above the five-year seasonal average, signaling ample supply availability. European gas storage presented a different picture, standing at 58% full against a five-year seasonal norm of 72%—a notable deficit that may support international LNG demand dynamics.

Drilling Activity Reflects Market Dynamics

Active natural gas drilling rigs fell to 125 units during the week ending January 2, down two rigs from the prior week and modestly below the 130-rig peak set in late November. Year-over-year metrics show industry recovery, with rig counts up from September 2024’s four-and-a-half-year low of 94 units, though current activity levels remain tempered relative to recent highs.

Electricity demand provided some counterbalance to weakness, with US electricity output rising 6.7% year-over-year to 82,732 GWh for the week ended January 3, according to Edison Electric Institute data. This supportive electricity trend reflects sustained industrial activity, though it proved insufficient to overcome weather-driven demand headwinds in the natural gas market on Thursday.