Natural Gas Market Finds Bottom as Technicals Trigger Buying Surge

Friday’s trading session marked a turning point for January Nymex natural gas (NGF26), which closed +0.076 or +1.94%, recovering sharply from oversold levels after a brutal seven-week decline. The recovery underscores a critical juncture where the formula of natural gas price dynamics—balancing supply abundance against seasonal demand patterns—shifted temporarily in favor of bulls.

The Bearish Headwinds That Defined Recent Moves

The recent freefall since the December 5 peak reflected a perfect storm of structural headwinds. Warmer-than-average US weather forecasts for late December through early January compressed heating demand sharply, as Atmospheric G2’s outlooks showed temperatures running 2-4 degrees above seasonal norms across most of the nation. This weather pattern allowed natural gas storage to accumulate steadily rather than draw down as typically expected during winter months.

On the supply side, production metrics paint an equally challenging picture for price support. The EIA’s latest projection set 2025 US natural gas output at 107.74 bcf/day (billion cubic feet per day), marginally higher than November’s 107.70 bcf/day forecast. Current production hovers near record levels, with Lower-48 dry gas generation hitting 1,123.9 bcf/day on Friday—an 8.8% year-over-year gain. This elevated supply backdrop, combined with active drilling rig counts reaching 127 (near the 2.25-year peak of 130 from late November), signals continued producer confidence and capacity additions.

Demand Realities and Storage Dynamics

Demand-side pressures intensified the bearish case. Lower-48 gas consumption Friday totaled 98.7 bcf/day, representing a 1.0% year-over-year decline even as electricity output posted encouraging gains. The Edison Electric Institute reported that US electricity generation in the week ending December 6 rose 2.3% year-over-year to 85,330 GWh, suggesting industrial and commercial activity remained resilient—yet this wasn’t enough to offset weather-driven heating demand destruction.

The December 12 EIA inventory report reinforced adequate supply positioning. Gas inventories declined by 167 bcf for the week, falling short of consensus expectations of 176 bcf but still exceeding the five-year average draw of 96 bcf. On a year-over-year basis, stockpiles were down just 1.2%, while sitting 0.9% above the five-year seasonal mean. In Europe, gas storage filled to 68% capacity, significantly below the typical 78% level for this period, highlighting regional disparity in storage positioning.

LNG and Technical Reversals

US LNG export flows added modest support, with net volumes to export terminals reaching 17.6 bcf/day on Friday, though this marked a 2.7% week-over-week decline. The combination of ample domestic supply, moderate demand, and constrained export growth had pushed the natural gas formula toward structural weakness—until technical mechanics intervened.

Friday’s sharp reversal reflected classic oversold short covering. After extended losses pushed prices into depressed technical territory, algorithmic and discretionary buyers emerged to cover short positions and initiate fresh long exposure. This tactical bounce may offer a temporary reprieve, yet the underlying formula of natural gas remains weighted toward supply abundance absent a significant demand shock or weather-driven heating surge in the coming weeks.

The path forward depends on whether storage rebuilding continues to cap price upside or whether a genuine demand inflection—whether from export acceleration, colder temperatures, or seasonal winter withdrawal—can rebalance market dynamics and restore conviction to buyers holding natural gas contracts through the withdrawal season.