Nat-Gas Prices Erase Early Gains as US Weather Forecasts Warm

November Nymex natural gas prices declined on Wednesday, falling from a three-week high, primarily due to updated forecasts indicating warmer U.S. temperatures for early November, which are expected to reduce heating demand. The market was further pressured by projections for a higher-than-seasonal build in weekly natural gas inventories, with a consensus forecast of an 83 bcf increase. This bearish sentiment is reinforced by near-record U.S. dry gas production and a rising active rig count, signaling ample supply.

Analysis

November Nymex natural gas prices declined by 0.69% on Wednesday, retreating from a three-week high, primarily driven by updated US weather forecasts predicting warmer temperatures for early November. This outlook is expected to significantly curb heating demand, contributing to long liquidation in futures markets. Further bearish pressure stemmed from consensus expectations for a higher-than-seasonal build of +83 bcf in the upcoming weekly EIA nat-gas inventories, exceeding the five-year average of +77 bcf.

The robust supply picture continues to be a significant bearish factor, with US dry gas production currently near record highs at 107.1 bcf/day, representing a 3.9% year-over-year increase. The EIA recently raised its 2025 production forecast to 107.14 bcf/day, while active US nat-gas drilling rigs have risen to 121, just below a two-year high. These indicators suggest sustained high production capacity.

Despite some supportive demand signals, such as a 4.0% year-over-year rise in US electricity output and record pipeline exports to Mexico, the overall supply-demand balance remains tilted towards oversupply. Current nat-gas inventories stand 4.3% above their five-year seasonal average, signaling adequate supplies and reinforcing the moderately negative sentiment.

Key Decisions for Investors

• Closely monitor evolving weather forecasts for early winter, as sustained colder trends could rapidly shift demand dynamics and provide price support.
• Hedge against potential downside risk given the current oversupply narrative, near-record production, and bearish sentiment.
• Pay close attention to weekly EIA inventory reports for any significant deviations from consensus builds, which could signal a change in market balance.