Nat-Gas Prices Turn Lower on a Mixed US Weather Forecast

December Nymex natural gas prices declined 0.70% from an 8-month high, primarily due to a mixed US weather forecast indicating potentially reduced heating demand and an upward revision in the 2025 US natural gas production outlook. The EIA increased its 2025 production forecast by 1.0% to 107.67 bcf/day, with current US production near record highs and active drilling rigs at a 2-year peak, contributing to ample supply as inventories remain 4.3% above their five-year seasonal average.

Analysis

December Nymex natural gas futures (NGZ25) declined 0.70% from an 8-month nearest-futures high, primarily driven by a mixed US weather forecast suggesting potentially reduced heating demand. This bearish sentiment was reinforced by the EIA's upward revision of its 2025 US natural gas production forecast by 1.0% to 107.67 bcf/day from September's estimate.

The supply-side dynamics remain robust, with current US dry gas production at 110.8 bcf/day, representing a 10.4% year-over-year increase and near record highs. Furthermore, the number of active US natural gas drilling rigs has risen to a 2.25-year high of 128, indicating sustained production capacity and a continued increase from the 4.5-year low of 94 rigs reported in September 2024.

Natural gas inventories as of October 31 were 4.3% above their five-year seasonal average, signaling adequate supplies. While lower-48 state gas demand increased 6.1% year-over-year and estimated LNG net flows rose 5.1% week-over-week, these demand-side factors were insufficient to counteract the strong supply signals and weather-related demand concerns, contributing to the overall bearish tone.

Key Decisions for Investors

• Investors should closely monitor evolving weather forecasts, particularly for the central US, as heating demand remains a critical short-term price driver for natural gas.
• It is prudent to assess the implications of sustained high US natural gas production and rising rig counts, which suggest continued ample supply and could cap significant price upside.
• Consider the impact of upcoming EIA inventory reports against the backdrop of current storage levels, which are already above the five-year seasonal average, indicating potential for further price pressure if builds exceed expectations.