Quick Summary
- Natural gas futures (NGZ25) experienced a decline, closing down 1.67% on Thursday, influenced by warmer weather forecasts that could reduce heating demand.
- Initial price increases were reversed as U.S. weather models indicated warmer temperatures across the northern and central U.S. for late November and early December.
- A larger-than-expected decrease in weekly natural gas storage provided a temporary boost to prices.
- Increased U.S. natural gas production, near record highs, and a recent surge in active drilling rigs continue to exert bearish pressure.
Natural Gas Futures Face Downward Pressure Amid Shifting Weather Outlook
December Nymex natural gas futures concluded Thursday with a loss, closing at -0.076, a 1.67% decrease.
Early gains for natural gas futures were erased as updated U.S. weather forecasts began indicating warmer temperatures. This shift in weather patterns is expected to temper the demand for natural gas used in heating. According to forecaster Atmospheric G2, temperatures are predicted to rise across the northern U.S. from November 25-29 and subsequently across the central U.S. from November 30-December 4.
Storage Declines and Production Trends Influence Market
The natural gas market initially saw prices move higher on Thursday following the release of weekly storage data. The Energy Information Administration (EIA) reported that U.S. natural gas inventories decreased by 14 billion cubic feet (bcf) for the week ending November 14. This draw was larger than the anticipated 12 bcf and contrasted with the five-year average, which typically shows an increase of 12 bcf for this period.
Adding to the bearish sentiment, U.S. natural gas production continues to climb. The EIA recently revised its 2025 forecast for U.S. natural gas production upward by 1.0%, projecting an average of 107.67 bcf/day, an increase from the September estimate of 106.60 bcf/day. Current U.S. natural gas production is nearing all-time highs, supported by a recent two-year peak in active natural gas drilling rigs.
Key Production and Demand Metrics
Data from BNEF indicated that dry gas production in the lower 48 U.S. states reached 110.1 bcf/day on Thursday, marking a 7.6% year-over-year increase. Lower-48 state gas demand stood at 84.6 bcf/day, a 1.2% rise year-over-year. Estimated LNG net flows to U.S. LNG export terminals on Thursday were 17.4 bcf/day, representing a 2.2% decrease week-over-week, according to BNEF.
Electricity Output Provides Support Amidst Other Bearish Factors
On the supportive side, the Edison Electric Institute reported that U.S. electricity output in the lower 48 states for the week ending November 15 rose by 5.33% year-over-year, reaching 75,586 gigawatt hours (GWh). Over the 52 weeks ending November 15, U.S. electricity output increased by 2.9% year-over-year to a total of 4,286,124 GWh. This rise in electricity demand can translate to increased natural gas consumption for power generation.
Inventory Levels and Global Storage Context
The weekly EIA report highlighted a significant draw in natural gas inventories for the week ending November 14, with a decrease of 14 bcf. This figure surpassed the market consensus of a 12 bcf draw and was substantially lower than the five-year average weekly increase of 12 bcf, indicating a bullish signal for prices. As of November 14, natural gas inventories were down 0.6% year-over-year but remained 3.8% above their five-year seasonal average, suggesting sufficient supply levels. In comparison, natural gas storage in Europe was reported at 81% full as of November 18, which is below the five-year seasonal average of 90% for this time of year.
Drilling Rig Activity and Historical Trends
Baker Hughes reported on Friday that the number of active U.S. natural gas drilling rigs decreased by three to 125 for the week ending November 14. This marks a slight pullback from the 128 rigs reported on November 7, a level not seen in 2.25 years. Despite this recent dip, the number of gas rigs has shown an overall increase in the past year, rising from a 4.5-year low of 94 rigs in September 2024.
Expert Commentary
The natural gas market is currently navigating conflicting signals. While warmer weather forecasts are pressuring prices by potentially reducing heating demand, the significant weekly inventory draw provided a brief positive impetus. The ongoing trend of high U.S. natural gas production remains a significant bearish factor, counteracting bullish storage movements. Investors are closely monitoring weather patterns and production levels to gauge future price direction.
