Nat-Gas Prices Hammered by Warmer US Weather Forecasts

January Nymex natural gas (NGF26) on Tuesday closed down sharply by -0.338 (-6.88%).

Jan nat-gas prices sold off sharply on Tuesday for a second day, sinking to a 1-week low.  Forecasts of warmer US weather, which will reduce nat-gas heating demand, have prompted heavy liquidation in nat-gas futures.   Forecaster Atmospheric G2 said Tuesday that forecasts have shifted mainly warmer across the US for December 14-18, especially in the central US, and will remain above-normal for December 19-23.

Higher US nat-gas production is a bearish factor for prices.  On Tuesday, the EIA raised its forecast for 2025 US nat-gas production to 107.74 bcf/day from its November estimate of 107.70 bcf/day.  US nat-gas production is currently near a record high, with active US nat-gas rigs recently posting a 2-year high.

Last Friday, nat-ga prices rallied to a nearly 3-year nearest-futures high as late-autumn temperatures have remained well below normal and are expected to persist in the near term, boosting heating demand and shrinking nat-gas storage levels.  

US (lower-48) dry gas production on Tuesday was 111.9 bcf/day (+7.2% y/y), according to BNEF.  Lower-48 state gas demand on Tuesday was 108.8 bcf/day (+22.5% y/y), according to BNEF.  Estimated LNG net flows to US LNG export terminals on Tuesday were 18.1 bcf/day (+2.6% w/w), according to BNEF.

As a supportive factor for gas prices, the Edison Electric Institute reported last Wednesday that US (lower-48) electricity output in the week ended November 29 rose +2.11% y/y to 76,459 GWh (gigawatt hours), and US electricity output in the 52-week period ending November 29 rose +2.99% y/y to 4,289,746 GWh.

Last Thursday's weekly EIA report was bearish for nat-gas prices, as nat-gas inventories for the week ended November 28 fell by -12 bcf, a smaller draw than the market consensus of -18 bcf and than the 5-year weekly average of a -43 bcf draw.  As of November 28, nat-gas inventories were down -0.4% y/y and were +5.1% above their 5-year seasonal average, signaling adequate nat-gas supplies.  As of December 7, gas storage in Europe was 72% full, compared to the 5-year seasonal average of 82% full for this time of year.

Baker Hughes reported last Friday that the number of active US nat-gas drilling rigs in the week ending December 5 fell by -1 to 129, just below the 2.25-year high of 130 rigs set on November 28.  In the past year, the number of gas rigs has risen from the 4.5-year low of 94 rigs reported in September 2024.