Key Takeaways
- December natural gas futures (NGZ25) experienced a decline, closing down 1.72% on Friday.
- A notable increase in weekly natural gas storage, exceeding expectations, contributed to the price retreat.
- Warmer temperature forecasts across much of North America are projected to reduce heating demand.
- Higher U.S. natural gas production forecasts and near-record production levels are bearish indicators.
- Despite recent price drops, strong electricity output in the U.S. offers some supportive factors for gas prices.
Natural Gas Prices Dip Amid Storage Surpluses and Warmer Outlook
December Nymex natural gas futures (NGZ25) saw a decline on Friday, closing down by 1.72%. This pullback followed a recent rally to an 8.25-month high, which was driven by colder temperatures increasing heating demand.
The primary driver for Friday’s losses was a larger-than-anticipated increase in U.S. natural gas storage. The Energy Information Administration (EIA) reported that inventories rose by 45 billion cubic feet (bcf) for the week ending November 7. This figure surpassed market expectations of a 34 bcf build and the 5-year weekly average of 35 bcf.
💡 Further pressure came from updated weather forecasts. Forecasters at Atmospheric G2 indicated a shift towards warmer temperatures across much of the U.S. for the periods of November 19-23 and even warmer across North America from November 24-28. This warmer outlook is expected to dampen demand for natural gas used in heating.
Production Trends and Inventory Levels
Increased U.S. natural gas production continues to act as a bearish factor for prices. The EIA recently revised its forecast for 2025 U.S. natural gas production upward by 1.0%, projecting an average of 107.67 bcf/day. This projection is based on current production levels that are near a record high, supported by a recent surge in active U.S. natural gas drilling rigs, which had reached a two-year high.
Data from BNEF showed U.S. (lower-48) dry gas production on Friday at 109.9 bcf/day, marking a 7.1% year-over-year increase. Conversely, Lower-48 state gas demand was reported at 80.0 bcf/day, down 5.5% year-over-year. Estimated LNG net flows to U.S. export terminals remained robust, at 17.7 bcf/day, up 5.9% week-over-week.
📊 As of November 7, total U.S. natural gas inventories stood at levels that were down only 0.3% year-over-year but were 4.5% above the 5-year seasonal average. This indicates generally adequate supplies heading into the peak winter demand season.
Supportive Factors and Rig Count
On the supportive side, the Edison Electric Institute reported that U.S. (lower-48) electricity output in the week ended November 8 saw a slight increase of 0.12% year-over-year, reaching 73,383 gigawatt hours (GWh). Over the past 52 weeks ending November 8, total electricity output rose by 2.84% year-over-year.
📌 While overall rig counts have been elevated, Baker Hughes reported that the number of active U.S. natural gas drilling rigs decreased by three to 125 rigs in the week ending November 14. This marks a slight pullback from the 2.25-year high of 128 rigs recorded on November 7. However, the number of gas rigs has shown a significant increase from the 4.5-year low of 94 rigs seen in September 2024.
In contrast, European gas storage levels were at 82% capacity as of November 12, which is below the 5-year seasonal average of 91% for this time of year. This regional difference could influence global LNG demand dynamics.
Expert Summary
The natural gas market is currently navigating a complex interplay of factors, including robust production, a surprise storage build, and shifting weather patterns. While warmer forecasts and increased inventories are exerting downward pressure, underlying demand from electricity generation and ongoing LNG exports provide some underlying support.
