Nat-Gas Prices Fall on a Larger-Than-Expected Build in Weekly Storage

December Nymex natural gas prices declined 1.72% on Friday, driven by a larger-than-expected weekly inventory build of +45 bcf and forecasts for warmer US temperatures, which are anticipated to curb heating demand. This bearish pressure is compounded by the EIA's upward revision of its 2025 US natural gas production forecast to 107.67 bcf/day, signaling robust supply despite a recent decrease in active drilling rigs.

Analysis

December Nymex natural gas prices (NGZ25) declined by 1.72% on Friday, primarily driven by a larger-than-anticipated weekly inventory build of +45 bcf, significantly exceeding the +34 bcf market expectation. This bearish pressure was exacerbated by updated forecasts predicting warmer US temperatures from November 19-28, which are expected to substantially reduce heating demand.

The supply outlook remains robust, with the EIA raising its 2025 US natural gas production forecast by 1.0% to 107.67 bcf/day. Current US dry gas production is near a record high at 109.9 bcf/day, representing a 7.1% year-over-year increase, despite a recent modest decline of three active drilling rigs to 125.

While LNG net flows increased by 5.9% week-over-week and US electricity output showed a modest rise, these demand-side supports are currently overshadowed by declining Lower-48 state gas demand, down 5.5% year-over-year. Consequently, natural gas inventories are now 4.5% above their five-year seasonal average, signaling an adequate supply environment.

Key Decisions for Investors

• Investors should consider a bearish stance on natural gas futures given the persistent oversupply, higher-than-expected inventory builds, and warmer weather forecasts reducing heating demand.
• Monitor upcoming weather pattern shifts and EIA storage reports closely, as short-term colder snaps or unexpected demand spikes could trigger significant price volatility, as seen with the recent rally.
• Evaluate positions in natural gas-exposed equities, as sustained low prices could impact profitability for producers, while increased LNG export capacity may offer some long-term demand support.