US Natural Gas Faces Dual Pressures as Record Drygas Output Clashes with Uneven Weather Patterns

The December Nymex natural gas contract retreated on Monday, sliding -0.031 (-0.68%) as conflicting weather signals and surging domestic production created headwinds for the energy commodity. The bearish tide stems primarily from record-breaking output levels and mixed atmospheric conditions that threaten to dampen heating demand across key demand regions.

Record Production Weighs Heavily on Prices

US drygas production reached an unprecedented milestone, with lower-48 dry gas output climbing to 112.2 bcf/day—a striking 8.3% year-over-year increase, according to Bloomberg NEF data released Monday. This surge in drygas generation has become the dominant bearish catalyst, as supply abundance typically erodes price support. The production boom reflects intensified drilling activity, with active US natural gas rigs recently hitting a 2-year peak following a substantial recovery from September 2024’s 4.5-year trough of 94 rigs.

Looking ahead, the Energy Information Administration upgraded its 2025 production forecast by 1.0% in mid-November, now targeting 107.67 bcf/day compared to September’s estimate of 106.60 bcf/day. This consistent upward revision underscores the structural production advantage constraining prices in the near term.

Weather Forecast Signals Mixed Demand Outlook

The atmospheric backdrop adds complexity to the price narrative. Atmospheric G2’s Monday forecast indicated a bifurcated pattern: colder conditions are expected to blanket the eastern two-thirds of the nation through early December, typically a positive factor for heating consumption. Conversely, the Southeast and West face warmer-than-normal temperatures that could suppress space heating needs in those regions, creating an offsetting headwind.

Lower-48 gas demand stood at 83.1 bcf/day on Monday, up 4.9% year-over-year, though this gain may face pressure if the warmer western conditions persist longer than anticipated.

LNG Exports and Power Generation Provide Modest Support

Liquefied natural gas flows to US export terminals reached 17.7 bcf/day, holding relatively flat week-over-week and representing a steady drain on domestic supply. Meanwhile, electricity generation delivered some constructive signals: US power output in the week ending November 15 surged 5.33% year-over-year to 75,586 GWh, with the 52-week output rising 2.9% to over 4.28 million GWh. This electricity demand typically translates into downstream gas consumption, though gains remain modest relative to production expansion.

Inventory Dynamics Suggest Adequate Supply Conditions

Last week’s EIA storage report provided a brief bullish moment. Natural gas inventories for the week ending November 14 fell 14 bcf—exceeding the consensus estimate of a 12 bcf draw but paling against the 5-year weekly norm of a +12 bcf build. As of mid-November, stockpiles sat 0.6% below year-ago levels while maintaining a +3.8% cushion above the 5-year seasonal average, signaling ample supply cushion.

European storage painted a less buoyant picture, standing at 81% capacity on November 18 versus the 90% seasonal benchmark, indicating tighter conditions abroad despite adequate US supplies.

Drilling Activity Remains Elevated Near Recent Peaks

Baker Hughes data from late November showed active US natural gas drilling rigs at 127—a 2-rig weekly increase and just shy of the 128-rig summit reached on November 7. This sustained elevated rig count reflects producer confidence despite recent price weakness, suggesting the production surge may persist through the winter months.

The convergence of record drygas output and weather uncertainty has created a challenging backdrop for natural gas bulls, with supply dynamics likely to remain the dominant price driver heading into the final weeks of November.