Warmer Weather and Record Production Pressure December Natural Gas Lower

December natural gas futures on Nymex experienced a significant pullback on Friday, settling down 0.080 points or -1.72%. The decline stemmed from a combination of bearish factors highlighted in the weekly natural gas storage report and broader market conditions.

Storage Surge Exceeds Market Expectations

The Energy Information Administration’s latest weekly natural gas storage report revealed inventory accumulation substantially outpaced consensus forecasts. Natural gas inventories climbed by 45 bcf during the week ending November 7, surpassing analyst expectations of 34 bcf and the 5-year weekly average of 35 bcf. This larger-than-anticipated storage build weighed directly on spot prices, signaling adequate supply conditions heading into winter.

Current inventory levels relative to history painted a picture of ample supply. As of November 7, natural gas inventories stood 0.3% below year-ago levels but remained 4.5% above their 5-year seasonal norm, reinforcing market perception of comfortable stockpile positions. European storage provided additional context—gas storage across Europe reached 82% capacity, trailing the 91% seasonal average for this period.

Temperature Forecasts Shift Warmer Across North America

Beyond inventory concerns, meteorological shifts undermined heating demand expectations. Atmospheric G2 issued Friday updated forecasts showing warming trends across most US regions (excluding certain East Coast areas) for November 19-23, with even more pronounced warmth anticipated across North America for November 24-28. Milder temperatures directly translate to reduced natural gas consumption for space heating, a fundamental demand driver during transitional seasons.

This weather adjustment contrasted sharply with Thursday’s market dynamics, when forecasts of colder-than-normal temperatures had propelled December natural gas futures to an 8.25-month high, momentarily boosting heating demand expectations and price sentiment.

Production Remains Near Record Territory

Supply-side pressure continued mounting as US natural gas production approached historic highs. The EIA raised its 2025 production forecast by 1.0% to 107.67 bcf/day, revising upward from September’s estimate of 106.60 bcf/day. Real-time production data underscored this strength—Lower-48 dry gas production hit 109.9 bcf/day on Friday, representing 7.1% year-over-year growth.

Drilling activity remained robust. Active US natural gas rigs reached a 2-year high, though Baker Hughes reported a modest contraction of 3 rigs to 125 total in the week ending November 14, pulling back from 128 rigs observed on November 7. Despite this weekly decline, the trajectory over 12 months proved constructive, with the rig count ascending from a 4.5-year low of 94 rigs in September 2024.

Demand and Export Dynamics

Regional demand presented a mixed picture. Lower-48 state gas consumption tallied 80.0 bcf/day on Friday, down 5.5% year-over-year according to BNEF. Meanwhile, LNG export activity continued expanding—net flows to US LNG export terminals reached 17.7 bcf/day, marking a 5.9% week-over-week increase.

Electricity generation offered modest support. The Edison Electric Institute reported that US Lower-48 electricity output for the week ended November 8 increased 0.12% year-over-year to 73,383 GWh, while the 52-week rolling total climbed 2.84% to approximately 4.28 million GWh.

Market Takeaway

The weekly natural gas storage report reinforced market concerns about near-term balance dynamics. With inventories comfortable, production near record levels, demand declining year-over-year, and weather forecasts shifting notably warmer, the fundamental backdrop for December natural gas prices remains decidedly bearish. Traders will monitor next week’s production figures, temperature patterns, and LNG export trends for potential price direction cues.