Natural Gas Futures Retreat as Weekly Storage Drawdown Falls Short of Market Expectations

January Nymex natural gas (NGF26) closed down 0.116 points, or 2.88%, on Thursday following disappointing inventory data that sparked a sharp selloff in the contract. The market had anticipated a more aggressive drawdown in weekly supplies, but the Energy Information Administration reported a more modest inventory reduction than anticipated.

Storage Data Disappoints, Triggering Price Drop

The EIA’s weekly report revealed that nat-gas inventories declined by 167 bcf for the week ending December 12—a smaller inventory withdrawal than the market consensus forecast of 176 bcf. While this represented a more aggressive decline compared to the 5-year weekly average of 96 bcf, the shortfall relative to expectations proved sufficient to dampen bullish sentiment. As of December 12, total nat-gas inventories were 1.2% lower year-over-year but sat 0.9% above their five-year seasonal average, indicating supplies remain adequately stocked.

Early Rally Fades on Mixed Demand Signals

Thursday’s session began with upside momentum after meteorological forecaster Vaisala warned of below-normal temperatures across the eastern United States during December 28-January 1, which theoretically would have supported heating demand. However, this catalytic strength proved short-lived as traders digested the inventory report and broader bearish fundamentals.

Production Surge Weighs on Price Direction

Nat-gas production continues to pressure prices from above. The EIA recently raised its 2025 production forecast to 107.74 bcf/day from its November projection of 107.70 bcf/day, reflecting expectations for sustained output growth. Current Lower-48 dry gas production reached 112.9 bcf/day on Thursday, representing an 8.8% year-over-year increase. Active nat-gas drilling rigs posted 127 units in the week ending December 12, down 2 from the previous week but still near the 2.25-year high of 130 rigs established on November 28.

Temperature Volatility Undermines Heating Demand

Prior to Thursday’s session, warmer-than-normal US temperatures had pressured nat-gas prices toward a seven-week low on Tuesday, curbing heating demand and enabling storage to rebuild. The broader price decline since the three-year peak of December 5 has directly correlated with above-normal weather patterns across key demand regions.

Demand and Export Flows Present Mixed Picture

Lower-48 state gas demand measured 90.9 bcf/day on Thursday, down 4.4% year-over-year. Meanwhile, estimated LNG net flows to US export terminals declined to 17.5 bcf/day, representing a 3.6% week-over-week pullback. Partially offsetting these headwinds, US electricity output in the Lower-48 rose 2.3% year-over-year for the week ended December 6, reaching 85,330 GWh, with the 52-week output total up 2.84% year-over-year to 4,291,665 GWh.

International Storage Remains Below Historical Norms

European gas storage on December 16 measured 69% capacity, lagging the five-year seasonal average of 78% full, indicating potential tightness in international markets may provide some price support to global benchmarks.