Nat-Gas Prices Fall on Warm US Temps and Higher US Production

December Nymex natural gas prices declined by 0.96% on Friday, primarily driven by forecasts for warmer-than-normal US weather expected to curb heating demand. This bearish pressure was amplified by an outlook for robust US natural gas production, with active drilling rigs reaching a 2.25-year high and the EIA raising its 2025 production forecast, collectively signaling ample supply despite weekly inventory builds aligning with market consensus.

Analysis

December Nymex natural gas prices declined by 0.96% on Friday, primarily driven by forecasts for warmer-than-normal US weather through November 21, which is expected to significantly curb heating demand. This demand-side pressure was compounded by an outlook for robust US natural gas production, contributing to a strongly negative market sentiment.

The supply picture remains bearish, with active US natural gas rigs increasing by three to a 2.25-year high of 128 rigs in the week ending November 7, signaling continued production growth. The EIA further reinforced this by raising its 2025 US natural gas production forecast by 0.5% to 107.14 bcf/day, while current lower-48 dry gas production is near record highs at 110.0 bcf/day (+8.1% y/y).

Despite a weekly inventory build of +33 bcf aligning with market consensus, US natural gas inventories as of October 31 were 4.3% above their 5-year seasonal average, indicating adequate supplies. Lower-48 state gas demand was down 2.7% year-over-year, and LNG net flows to export terminals saw a slight weekly decrease of 0.8%, further contributing to the overall bearish outlook.

Key Decisions for Investors

• Investors should maintain a bearish stance on natural gas in the short-term, given persistent mild weather forecasts and robust production growth signaling ample supply.
• Consider hedging strategies or reducing long exposure to natural gas futures and related ETFs like UNG or BOIL, while potentially exploring inverse ETFs such as KOLD.
• Monitor upcoming weather forecasts for any significant shifts to colder temperatures and weekly EIA inventory reports for deviations from the 5-year average, as these could alter the current supply/demand balance.