Why Warm Winter Weather and Record US Production Are Pressuring Natural Gas Prices

The natural gas price forecast for the near term looks decidedly downward. February Nymex natural gas (NGG26) concluded Thursday’s session at -0.118, representing a -3.35% decline. The primary culprit: meteorological headwinds that are undermining a key demand pillar for the commodity.

Temperature Surge Dampens Heating Demand

WSI’s latest forecasts paint a picture of above-average temperatures sweeping across western and central US regions over the coming week—exactly the wrong scenario for natural gas consumption. With heating season still underway, warmer-than-normal conditions signal reduced demand for space heating, the traditional backbone of winter nat-gas usage. This weather outlook has emerged as the dominant bearish factor, overwhelming other market signals.

Supply Continues to Surge Despite Inventory Draws

Paradoxically, Thursday’s EIA inventory report delivered bullish news that failed to support prices. Natural gas inventories recorded a drawdown of 119 bcf last week, exceeding market expectations of 113 bcf. Yet this larger-than-anticipated depletion barely moved the needle—a testament to how heavily supply-side concerns are weighing on sentiment.

The supply pressure is relentless. US natural gas production has climbed to near-record territory. The EIA’s December 9 update lifted its 2025 production forecast to 107.74 bcf/day (up from 107.70 bcf/day previously). Lower-48 dry gas production reached 111.0 bcf/day on Thursday, up 8.7% year-over-year, according to BNEF data. Active drilling rigs recently touched a 2-year high, signaling operators’ confidence in expanding output despite weak prices.

Demand Signals Show Seasonal Weakness

Demand metrics reinforce the bearish picture. Lower-48 state gas demand stood at 88.0 bcf/day on Thursday, down 29.5% year-over-year—a sharp seasonal contraction typical of milder winters. Meanwhile, LNG net flows to US export terminals reached 19.2 bcf/day, off 1.5% week-over-week, suggesting even export outlets are moderating pace.

Mixed Signals from the Power Sector

Electricity generation provided a modest counterweight. Edison Electric Institute data showed US (lower-48) electricity output in the week ending January 3 rose 6.7% year-over-year to 82,732 GWh. Over the 52-week period through January 3, electricity output climbed 3.0% year-over-year to 4,306,606 GWh—a supportive backdrop for gas demand in power generation.

Storage: Ample Supplies Limit Price Support

The inventory picture reinforces abundant supply conditions. The January 2 EIA report showed nat-gas inventories down 3.5% year-over-year but sitting 1.0% above the 5-year seasonal average—indicating comfortable supply margins. European gas storage tells a similar story: European facilities stood at 58% capacity as of January 6, well below the 72% 5-year seasonal average for this period, reflecting global supply adequacy.

Rig Count and Production Momentum

Baker Hughes reported that active US nat-gas drilling rigs fell by 2 to 125 in the week ending January 2, remaining modestly below the 130-rig 2.25-year high logged on November 28. Despite this slight pullback, the trajectory remains bullish for supply—rig counts have surged from September 2024’s 4.5-year low of 94.

The natural gas price forecast ultimately hinges on a classic supply-demand imbalance: record-near production meeting season-adjusted demand weakness in a warmer-than-normal winter. Until temperatures normalize or producers throttle back, downward pressure on natural gas prices appears likely to persist.