Natural Gas Slides to Two-Month Lows as Winter Warmth Eases Heating Demand

Warmer Forecast Undermines Natural Gas Market

Temperatures are forecast to run significantly above normal across the eastern two-thirds of the United States during January 5-9, with continued warmth expected through January 10-14. This weather pattern is weighing heavily on natural gas demand, as warmer conditions reduce heating requirements during what would typically be peak winter consumption period. Atmospheric G2’s recent forecasts signaling this warming trend have accelerated selling pressure on natural gas futures contracts.

Storage Surprises Push Prices Lower

February Nymex natural gas delivered disappointing inventory data on Wednesday, closing at -7.20% amid broader selling. The Energy Information Administration’s weekly storage report revealed that natural gas inventories declined by 38 billion cubic feet (bcf) for the week ending December 26—a smaller draw than the market’s consensus expectation of 51 bcf and substantially less than the five-year weekly average decline of 120 bcf. This miss on expectations signaled abundant supplies heading into the new year.

Current natural gas inventory levels stand 1.1% below year-ago comparisons while sitting 1.7% above the five-year seasonal average, reinforcing signals of sufficient supply cushion. European gas storage presents a different picture, sitting at 64% capacity versus the typical 75% full for this time of year.

Production Momentum Challenges Price Recovery

Natural gas production in the lower-48 states reached 113.8 bcf/day on Wednesday, representing a 7.6% year-over-year increase and underscoring the production pressure on pricing. The EIA raised its 2025 natural gas production forecast to 107.74 bcf/day from the prior November estimate of 107.70 bcf/day, signaling production levels remain robust.

Active natural gas drilling rigs fell by 2 units during the week ending January 2, declining to 125 rigs according to Baker Hughes. While this represents a modest step down from the 2.25-year high of 130 rigs reached on November 28, the rig count remains substantially elevated compared to September 2024’s four-and-a-half-year low of 94 rigs, confirming sustained production capacity.

Demand Picture Remains Mixed

Lower-48 state natural gas demand measured 106.1 bcf/day on Wednesday, up 24.2% year-over-year. LNG export terminals received net flows of 19.9 bcf/day, marking a 7.1% weekly increase. US electricity generation rose 2.3% year-over-year for the week ending December 6, totaling 85,330 gigawatt hours, suggesting ongoing industrial and commercial demand supports the broader energy complex.

The convergence of abundant inventories, above-normal temperatures, and ample production capacity has created headwinds for natural gas price recovery in the near term.