US Natural Gas Production Surge Weighs on Prices Amid Warm Winter Forecasts

Natural gas futures faced significant downward pressure on Wednesday, with February NYMEX contracts declining 7.20% to close sharply lower. The market selloff reflects a confluence of bearish factors: forecasts of above-normal temperatures reducing heating demand, record-high US natural gas production levels, and surprisingly modest inventory draws that signal ample supply availability.

Supply Dynamics: Production Records Challenge Price Support

US natural gas production continues to reach concerning highs for price bulls. The EIA raised its 2025 production forecast to 107.74 bcf/day in December, marginally up from November’s estimate of 107.70 bcf/day. Current production metrics underscore this bullish supply picture: lower-48 dry gas production reached 113.8 bcf/day on Wednesday, up 7.6% year-over-year, according to BNEF data. This robust production environment has emboldened drilling activity—US natural gas rigs recently posted a 2-year high, though they modestly retreated to 125 rigs in the week ending January 2, down 2 from the prior week.

Inventory Data Signals Elevated Supply Levels

The EIA’s weekly report on Wednesday delivered disappointing news for natural gas bulls. Inventories fell only 38 bcf for the week ended December 26—significantly smaller than market consensus of 51 bcf and substantially below the 5-year average weekly draw of 120 bcf. This modest withdrawal highlighted that supply cushion remains comfortable. As of December 26, inventories stood 1.1% below year-ago levels but 1.7% above their 5-year seasonal average, confirming ample natural gas supplies relative to historical norms.

Temperature Forecasts Add Pressure

Meteorological headwinds compounded the supply-driven weakness. Atmospheric G2 forecaster reported that temperatures will trend significantly above normal across the eastern two-thirds of the US during January 5-9, with warmer conditions persisting through January 10-14. Milder temperatures directly suppress heating demand for natural gas, a key consumption driver during winter months.

Demand and Export Flows Show Mixed Signals

Lower-48 state gas demand reached 106.1 bcf/day on Wednesday, up 24.2% year-over-year, demonstrating continued consumption strength. LNG export flows to US terminals averaged 19.9 bcf/day, showing a modest 7.1% weekly increase. Meanwhile, US electricity generation rose 2.3% year-over-year for the week ended December 6 to 85,330 GWh, providing some underlying support to power-related gas consumption. European gas storage stood at 64% full as of December 28, below the 5-year seasonal average of 75%, reflecting relatively tight conditions abroad.

The combination of elevated US natural gas production, comfortable inventory levels, and warming temperature forecasts created a challenging near-term environment for natural gas prices, overriding potential support from robust electricity generation and maintained LNG export volumes.