Natural Gas Prices Rally as Persistent Cold Weather Continues to Support Market

Natural gas prices experienced a sharp surge on Friday, with March Nymex futures (NGH26) closing up 11.13%, driven by a combination of weather patterns and supply dynamics that are reshaping market fundamentals. The most recent price moves remain below Wednesday’s 3-year high, but the upward momentum reflects a market responding to multiple bullish pressures that are unlikely to dissipate in the near term.

Prolonged Cold Weather Fueling Demand and Inventory Drawdowns

The persistent Arctic conditions currently gripping the US have become the primary catalyst for natural gas strength. Forecasters at the Commodity Weather Group confirmed that below-normal temperatures will continue across the Upper Midwest, Mid-Atlantic, and Northeast through early February, a pattern that is expected to sustain elevated heating demand throughout the winter season.

Natural gas prices have surged over 120% in recent weeks, reaching a 3-year high earlier this week as an unusual winter storm combined with ongoing Arctic conditions disrupted normal operations. The cold snap triggered freeze-ups in gas production wells, particularly in Texas and surrounding regions, forcing approximately 50 billion cubic feet of daily production offline—representing roughly 15% of total US natural gas output. While some production is slowly returning to operational status, the supply disruptions have been significant enough to reshape market expectations.

Production Pressures Amid Growing Demand

Current market dynamics reveal a widening gap between available supply and rising consumption. On Friday, Lower-48 dry gas production registered at 110.0 bcf/day, posting a modest 3.4% year-over-year increase according to Bloomberg NEF data. In contrast, gas demand for the same period jumped to 128.7 bcf/day, representing a substantial 38.4% surge compared to the prior year. This demand acceleration reflects the heating requirements imposed by the persistent cold weather pattern across the nation.

The Energy Information Administration provided additional support for prices through its weekly inventory report, which showed natural gas storage levels fell by 242 bcf for the week ending January 23—exceeding market consensus expectations of 238 bcf and the 5-year weekly average draw of 208 bcf. As of late January, nat-gas inventories were 9.8% higher year-over-year but remained 5.3% above their seasonal 5-year average, indicating that despite the large drawdown, supplies remain well-stocked relative to historical norms.

Supply Outlook and Market Implications

The EIA recently adjusted its 2026 production forecast downward to 107.4 bcf/day from the previous estimate of 109.11 bcf/day, signaling potential tightening in the medium term. Despite this revision, active US natural gas drilling rigs reached a 2-year high, with Baker Hughes reporting 125 active rigs in the week ending January 30—up 3 from the prior week and approaching the 2.25-year peak of 130 set in late November.

The market is also tracking wider supply dynamics, with LNG export flows from US terminals reaching 17.7 bcf/day as of Friday, down 8.3% week-over-week. Meanwhile, European gas storage levels have fallen to 43% capacity, running 15 percentage points below the seasonal 5-year average for this time of year, suggesting potential demand spillovers from international markets.

While electricity demand showed weakness with Lower-48 output declining 6.3% year-over-year for the week ending January 24, the ongoing heating demand from persistent cold weather patterns continues to provide a structural floor for natural gas prices. The combination of supply constraints from production disruptions and the forecast for sustained below-normal temperatures across major consumption regions positions the market for continued above-average inventory draws in the coming weeks.