Warmer Weather and Rising Production Put Heavy Pressure on Natural Gas Prices

Natural gas took a beating on Friday, with January Nymex futures sliding -0.118 (-2.79%) to hit a 6-week low. The selloff extended through the entire week as market forces conspired against prices from multiple angles.

Weather Forecasts Shift Market Sentiment

Atmospheric forecasters are calling for a significant warming pattern across the US. Temperatures are expected to run above normal throughout the western, central, and southern regions from mid-to-late December. This shift matters because warmer conditions directly reduce heating demand—the primary driver of winter nat-gas consumption. That prospect has triggered substantial liquidation in nat-gas futures contracts as traders adjust positions accordingly.

The contrast is stark: just last Friday, prices had rallied to nearly 3-year highs on the back of unseasonably cold temperatures that bolstered heating demand and drew down storage levels.

Supply Expansion Adding to Downward Pressure

On the production side, the outlook remains robust. The EIA revised its 2025 forecast upward this week, projecting 107.74 bcf/day compared to November’s estimate of 107.70 bcf/day. Current US nat-gas production continues hovering near record levels, with drilling rigs recently posting 2-year highs.

Real-time production data reinforces the supply-rich environment. Lower-48 dry gas output reached 112.5 bcf/day on Friday (+7.1% year-over-year), while LNG export flows to US terminals stood at 18.1 bcf/day (-3.0% week-over-week).

Storage and Demand Dynamics

On the demand side, lower-48 gas consumption was recorded at 110.6 bcf/day (-3.4% year-over-year), suggesting softer usage patterns heading into the winter season.

The EIA’s weekly storage report provided one bright spot. Nat-gas inventories fell -177 bcf for the week ended December 5—exceeding consensus expectations of -170 bcf and the 5-year average draw of -89 bcf. However, overall inventory levels remain adequate, standing unchanged year-over-year and +2.8% above their 5-year seasonal average.

Rig Activity and Market Setup

Active US nat-gas drilling rigs fell to 127 in the week ending December 12, down -2 from recent levels. Despite the modest decline, rig counts have climbed significantly from September 2024’s 4.5-year low of 94 rigs, demonstrating sustained industry commitment to production.

With above-average temperatures forecast to dominate weather patterns and production staying elevated, nat-gas prices face continued downside risks in the near term.