Nat-Gas Prices Sink on Warm US Weather Forecasts

February Nymex natural gas (NGG26) on Friday closed down -0.238 (-6.99%),

Feb nat-gas prices added to this week's sell-off on Friday, dropping to a 2.5-month nearest-futures low.  Forecasts of warmer US weather that will reduce nat-gas heating demand and allow storage levels to rebuild are undercutting prices.   Forecaster NatGasWeather said Friday that forecasts are warming across most of the US for January 9-15, with temperatures shifting even warmer across most of the country for January 16-23.  

Higher US nat-gas production is bearish for prices.  The EIA on December 9 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 Friday was 113.5 bcf/day (+10.7% y/y), according to BNEF.  Lower-48 state gas demand on Friday was 87.9 bcf/day (-28.1% y/y), according to BNEF.  Estimated LNG net flows to US LNG export terminals on Friday were 19.5 bcf/day (+0.1% w/w), according to BNEF.

As a supportive factor for gas prices, the Edison Electric Institute reported on Wednesday that US (lower-48) electricity output in the week ended January 3 rose +6.7% y/y to 82,732 GWh (gigawatt hours), and US electricity output in the 52-week period ending January 3 rose +3.0% y/y to 4,306,606 GWh.

Thursday's weekly EIA report was bullish for nat-gas prices, as nat-gas inventories for the week ended January 2 fell by -119 bcf, a larger draw than the market consensus of -13 bcf and much larger than the 5-year weekly average draw of -92 bcf.  As of January 2, nat-gas inventories were down -3.5% y/y and were +1.0% above their 5-year seasonal average, signaling ample nat-gas supplies.  As of January 6, gas storage in Europe was 58% full, compared to the 5-year seasonal average of 72% full for this time of year.

Baker Hughes reported Friday that the number of active US nat-gas drilling rigs in the week ending January 9 fell by -1 to 124 rigs, modestly below the 2.25-year high of 130 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.