Why Natural Gas Prices Keep Shifting: A Closer Look at Market Drivers

Natural gas prices don’t move in isolation—they’re driven by a complex interplay of supply, demand, and weather expectations. On Thursday, February Nymex natural gas (NGG26) closed down 0.118, representing a 3.35% decline, illustrating how quickly sentiment can shift in commodity markets.

The Demand Side: Temperature Forecasts Matter

Warmer-than-normal US temperatures over the coming week are a key headwind for natural gas prices. When forecasters predict above-average temperatures across western and central regions, heating demand for natural gas typically contracts. This is exactly what happened Thursday—the outlook for milder weather pressured prices despite other supportive factors.

Production Remains Near Historic Levels

US natural gas production continues to operate near record highs, which weighs on prices. The EIA recently raised its 2025 production forecast to 107.74 bcf/day, up marginally from November’s estimate of 107.70 bcf/day. Lower-48 dry gas production stood at 111.0 bcf/day on Thursday, reflecting strong supply capacity.

Active gas drilling rigs have also posted a 2-year high, signaling producers’ confidence in the market despite current price pressures. While the rig count modestly declined by 2 to 125 rigs in the week ending January 2, this remains well above the 4.5-year low of 94 rigs seen in September 2024.

Inventory Draws: A Mixed Signal

Thursday’s EIA inventory report revealed that natural gas inventories fell 119 bcf last week—exceeding the consensus expectation of 113 bcf and significantly outpacing the 5-year average draw of 92 bcf. On the surface, larger draws are bullish, yet prices still declined.

As of January 2, nat-gas inventories were down 3.5% year-over-year but remained 1.0% above their 5-year seasonal average, signaling ample supply levels. This context explains why even a larger-than-expected draw couldn’t sustain upward momentum.

LNG Exports and Electricity Demand

LNG net flows to US export terminals reached 19.2 bcf/day on Thursday. Meanwhile, US electricity output in the week ended January 3 rose 6.7% year-over-year to 82,732 GWh, with the 52-week output up 3.0% to 4,306,606 GWh. These supportive metrics weren’t enough to overcome weather-related demand concerns.

The Bottom Line

Natural gas prices fluctuate because no single factor dominates—weather forecasts, production levels, inventory dynamics, and export demand all interact. Thursday’s price decline reflects how warmer temperatures can override other supportive indicators, reminding traders that seasonal patterns remain a critical pricing driver in energy markets.