Nat-Gas Prices Rebound as US Weather Forecasts Cool

January Nymex natural gas (NGF26) on Wednesday closed up by +0.138 (+3.55%).

Jan nat-gas prices rallied sharply on Wednesday after cooler US weather forecasts sparked short covering in nat-gas futures.  Forecaster Atmospheric G2 said Wednesday that forecasts shifted colder in the East and not as warm in the southern states for December 27-31, potentially boosting nat-gas heating demand.

Nat-gas prices also have support on expectations for an above-average draw in weekly storage levels.  The consensus is that Thursday's weekly EIA nat-gas inventories will decline by -176 bcf for the week ended December 12, well above the five-year average of a -96 bcf draw for this time of year.  

On Tuesday, nat-gas prices fell to a 7-week low due to above-normal US temperatures, which curbed nat-gas heating demand.  Since posting a 3-year high on December 5, nat-gas prices have been in freefall as warmer US weather has curbed heating demand and allowed nat-gas storage to rebuild.  

Higher US nat-gas production is also bearish for prices.  Last 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.

US (lower-48) dry gas production on Wednesday was 112.4 bcf/day (+7.4% y/y), according to BNEF.  Lower-48 state gas demand on Wednesday was 94.7 bcf/day (+5.0% y/y), according to BNEF.  Estimated LNG net flows to US LNG export terminals on Wednesday were 18.1 bcf/day (+0.8% 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 December 6 rose +2.3% y/y to 85,330 GWh (gigawatt hours), and US electricity output in the 52-week period ending December 6 rose +2.84% y/y to 4,291,665 GWh.

Last Thursday's weekly EIA report was bullish for nat-gas prices, as nat-gas inventories for the week ended December 5 fell by -177 bcf, a larger draw than the market consensus of -170 bcf and than the 5-year weekly average of -89 bcf.  As of December 5, nat-gas inventories were down unchanged y/y and were +2.8% above their 5-year seasonal average, signaling adequate nat-gas supplies.  As of December 15, gas storage in Europe was 69% full, compared to the 5-year seasonal average of 78% 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 12 fell by -2 to 127 rigs, 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.