Nat-Gas Prices Pressured by Mid-October US Warmth

November Nymex natural gas prices fell 3.43% on Friday, primarily due to forecasts for warmer mid-October U.S. weather that are expected to dampen heating demand. This decline occurred despite a recent bullish reaction to a smaller-than-expected weekly storage build, as the broader market remains pressured by near-record U.S. natural gas production—currently at 108.4 bcf/day—and overall adequate inventories, which are 5% above their five-year seasonal average.

Analysis

November Nymex natural gas (NGX25) on Friday closed down by -0.118 (-3.43%). Nov nat-gas prices added to Thursday's losses on Friday and settled lower. Forecasts for warm mid-October US weather, which will curb heating demand for nat-gas are weighing on prices. Forecaster Atmospheric G2 said Friday that forecasts shifted warmer across the middle of the US for October 8-12, and projections turned hotter across most of the country for October 13-17. On Thursday, nat-gas prices jumped to a 2.5-month nearest-futures high due to a smaller-than-normal build in weekly gas storage. The EIA reported Thursday that nat-gas inventories rose +53 bcf for the week ended September 26, below expectations of +64 bcf. Higher US nat-gas production has recently been a bearish factor for prices. Last month, the EIA raised its forecast for 2025 US nat-gas production by +0.2% to 106.63 bcf/day from August's estimate of 106.40 bcf/day. US nat-gas production is currently near a record high, with active US nat-gas rigs recently posting a 2-year high. US (lower-48) dry gas production on Friday was 108.4 bcf/day (+5.4% y/y), according to BNEF. Lower-48 state gas demand on Friday was 66.4 bcf/day (-7.4% y/y), according to BNEF. Estimated LNG net flows to US LNG export terminals on Friday were 15.7 bcf/day (-1.0% w/w), according to BNEF. As a supportive factor for gas prices, the Edison Electric Institute reported Wednesday that US (lower-48) electricity output in the week ended September 27 rose +5.96% y/y to 84,530 GWh (gigawatt hours), and US electricity output in the 52-week period ending September 27 rose +2.9% y/y to 4,271,916 GWh. Thursday's weekly EIA report was bullish for nat-gas prices since nat-gas inventories for the week ended September 26 rose +53 bcf, below the market consensus of +64 bcf and below the 5-year weekly average of +85 bcf. As of September 26, nat-gas inventories were up +0.4% y/y, and were +5.0% above their 5-year seasonal average, signaling adequate nat-gas supplies. As of September 30, gas storage in Europe was 85% full, compared to the 5-year seasonal average of 90% full for this time of year. Baker Hughes reported Friday that the number of active US nat-gas drilling rigs in the week ending October 3 rose by +1 to 118 rigs, slightly below the 2-year high of 124 rigs posted on August 1. In the past year, the number of gas rigs has risen from the 4.5-year low of 94 rigs reported in September 2024. On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here. The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc. November Nymex natural gas futures (NGX25) experienced a significant downturn, closing down 3.43% on Friday and eroding gains that had pushed prices to a 2.5-month high the previous day. The primary driver for this bearish reversal is the forecast for unseasonably warm weather across the middle and most of the U.S. from October 8-17, which is expected to suppress heating demand. This short-term sentiment is compounded by fundamentally bearish supply-side dynamics, with U.S. dry gas production running at a near-record 108.4 bcf/day, a 5.4% year-over-year increase. Reinforcing this production outlook, the EIA recently increased its 2025 output forecast, and the active rig count rose to 118. While the overall inventory level remains adequate at 5.0% above the 5-year seasonal average, the market is navigating conflicting signals. Thursday's price spike was a direct reaction to a bullish EIA report, which showed an inventory build of only +53 bcf, well below the +64 bcf consensus and the +85 bcf 5-year average. This indicates some underlying market tightness, which is further supported by a 5.96% year-over-year rise in electricity output and European gas storage sitting below its seasonal average at 85% full. However, with domestic gas demand down 7.4% year-over-year and LNG export flows dipping 1.0% week-over-week, the bearish factors of high production and weak near-term demand currently outweigh the supportive elements.

Key Decisions for Investors

• Given that the current price decline is heavily driven by short-term weather forecasts, investors should monitor for any shift toward cooler temperatures, which could trigger a rapid price reversal.
• The market presents conflicting signals with bearish high production versus a bullishly low weekly inventory build, suggesting heightened volatility and warranting caution against taking large, unhedged directional positions.
• For a sustained price recovery, closely watch LNG export flow data, as European storage levels are below their 5-year average, representing a potential demand-pull catalyst that could tighten the currently well-supplied U.S. market.
• The fundamental overhang from near-record U.S. production and inventories that are 5.0% above the seasonal average suggests a bearish structural bias, which may cap the upside potential of rallies that are not supported by significant demand-side improvements.