Cold Weather Forecasts Push Nat-Gas Prices Higher

December Nymex natural gas prices extended their month-long rally to an 8-month nearest-futures high, closing up +2.49%, primarily driven by forecasts for colder U.S. temperatures expected to increase heating demand. This price appreciation occurs despite robust supply signals, including the EIA raising its 2025 production forecast, current U.S. nat-gas production near record levels, and active drilling rigs reaching a 2.25-year peak, with U.S. inventories remaining above their five-year seasonal average.

Analysis

December Nymex natural gas prices surged +2.49%, extending a month-long rally to an 8-month nearest-futures high. This upward momentum is primarily driven by updated forecasts from Atmospheric G2 predicting colder US temperatures from November 18-27, which are expected to significantly increase heating demand. This short-term demand outlook is a key factor in the recent price appreciation.

Despite this price strength, significant bearish supply-side factors persist. The EIA recently raised its 2025 US nat-gas production forecast by +1.0% to 107.67 bcf/day, with current production near a record high at 109.7 bcf/day (+7.3% y/y). Furthermore, active US nat-gas drilling rigs have reached a 2.25-year high of 128, while inventories as of October 31 remained +4.3% above their 5-year seasonal average, indicating ample supply.

While lower-48 state gas demand was down -1.2% y/y at 82.7 bcf/day, LNG net flows to export terminals showed robust growth of +8.9% w/w to 17.8 bcf/day, and US electricity output rose +0.12% y/y. European gas storage, at 82% full as of November 10, trails its 5-year seasonal average of 91%, potentially influencing global LNG demand dynamics and providing some support for US prices through exports.

Key Decisions for Investors

• Investors should closely monitor daily weather forecast revisions, as short-term temperature shifts are currently the primary driver of natural gas price volatility.
• Evaluate the sustainability of current high US production levels and rig count increases, as continued robust supply could cap upside price potential once weather-driven demand subsides.
• Consider the implications of strong LNG export demand and European storage deficits, which may provide a floor for natural gas prices despite domestic oversupply.