Why Natural Gas Is Hitting 2-Month Lows—And Today's Natural Gas Price Tells the Story

February Nymex natural gas futures cratered on Tuesday, dropping 4.91% to close at new lows not seen in over two months. The selloff reflects a confluence of bearish factors overwhelming the market, from temperature forecasts to production surges that are reshaping today’s natural gas price dynamics.

Mild Winter Eroding Heating Demand

The primary culprit behind the downward pressure is a forecasted warm spell gripping most of the US. Xweather indicated on Tuesday that above-normal temperatures will blanket nearly the entire country through January 10, with more typical conditions returning in the latter half of the month. This weather pattern is critical because higher temperatures directly reduce heating demand—the backbone of winter gas consumption—allowing storage facilities to rebuild inventory instead of drawing it down.

Production Surge Pushing Supply Higher

On the supply side, the picture looks equally bearish. The EIA boosted its 2025 natural gas production forecast to 107.74 bcf/day (up from 107.70 bcf/day in November), signaling sustained high output ahead. Today’s natural gas price is also weighed down by the fact that Lower-48 dry gas production hit 112.2 bcf/day on Tuesday—up 8.7% year-over-year—putting output near record levels. Active drilling rigs have recently posted 2-year highs, suggesting producers remain committed to ramping supply despite soft prices.

Demand Weakness Across the Board

Demand metrics paint an equally grim picture for price support. Lower-48 gas demand clocked in at just 89.5 bcf/day on Tuesday, representing a steep 25.2% year-over-year decline. Even LNG export flows—typically a stable demand outlet—slipped to 18.5 bcf/day, down 6.0% week-over-week. These numbers illustrate why today’s natural gas price has nowhere to hide.

Inventory Comfort Signals Ample Supply

The EIA’s weekly inventory report from last Wednesday added fuel to the bearish case. Natural gas inventories fell by only 38 bcf for the week ended December 26—well below the consensus estimate of 51 bcf and dramatically smaller than the 5-year average draw of 120 bcf. As of late December, inventories sat 1.1% below year-ago levels but were 1.7% above their 5-year seasonal average, reinforcing the narrative of plentiful supplies. European storage tells a similar story, sitting at 60% capacity versus a 73% seasonal normal, further easing any supply concerns.

A Modest Bright Spot: Electricity Generation

Not all news was dire. Electricity output showed some vigor, with US (Lower-48) power generation in the week ended December 6 rising 2.3% year-over-year to 85,330 GWh, according to the Edison Electric Institute. Over the full 52-week period, electricity output climbed 2.84% to 4,291,665 GWh. This uptick could theoretically bolster gas demand if the trend persists, though current weakness suggests the benefit remains limited.

Drilling Activity Still Elevated Despite Price Pressure

Baker Hughes data from last Tuesday showed active US natural gas rigs falling by 2 to 125 units in the week ended January 2, leaving them modestly below the 2.25-year peak of 130 rigs set November 28. Despite the recent pullback, the rig count has recovered substantially from September 2024’s 4.5-year low of 94 rigs, demonstrating producer resilience even as today’s natural gas price languishes.

The convergence of warm weather forecasts, record-level production, weak demand, and comfortable inventory levels has created a perfect storm for bearish sentiment in the natural gas market. Until demand patterns shift or production moderates, today’s natural gas price may continue to face headwinds.