January Nymex natural gas (NGF26) on Wednesday closed up by +0.021 (+0.46%).

Jan nat-gas prices recovered from a 2-week low on Wednesday and settled higher.  Short covering emerged in nat-gas futures on Wednesday amid expectations of a significant drawdown in weekly US nat-gas storage.  The consensus is that Thursday’s weekly EIA nat-gas inventories will fall by -170 bcf for the week ended Dec 5, a much larger draw than the 5-year average for the week of -89 bcf.

Nat-gas prices initially extended this week’s slide on Wednesday due to forecasts of warmer US weather, which will reduce nat-gas heating demand, prompting heavy liquidation in nat-gas futures.   Forecaster Atmospheric G2 said Wednesday that temperatures will trend warmer across the eastern and southern US for December 20-24.

Higher US nat-gas production is a bearish factor for prices.  On Tuesday, the EIA raised its forecast for 2025 US nat-gas production to 107.74 bcf/day from its November estimate of 107.70 bcf/day.  US nat-gas production is currently near a record high, with active US nat-gas rigs recently posting a 2-year high.

Last Friday, nat-ga prices rallied to a nearly 3-year nearest-futures high as late-autumn temperatures have remained well below normal and are expected to persist in the near term, boosting heating demand and shrinking nat-gas storage levels.  

US (lower-48) dry gas production on Wednesday was 111.9 bcf/day (+7.8% y/y), according to BNEF.  Lower-48 state gas demand on Wednesday was 106.2 bcf/day (+12.0% y/y), according to BNEF.  Estimated LNG net flows to US LNG export terminals on Wednesday were 18.3 bcf/day (+1.9% 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 Dec 6 rose +2.3% y/y to 85,330 GWh (gigawatt hours), and US electricity output in the 52-week period ending Dec 6 rose +2.84% y/y to 4,291,665 GWh.

Last Thursday’s weekly EIA report was bearish for nat-gas prices, as nat-gas inventories for the week ended Nov 28 fell by -12 bcf, a smaller draw than the market consensus of -18 bcf and than the 5-year weekly average of a -43 bcf draw.  As of Nov 28, nat-gas inventories were down -0.4% y/y and were +5.1% above their 5-year seasonal average, signaling adequate nat-gas supplies.  As of Dec 7, gas storage in Europe was 72% full, compared to the 5-year seasonal average of 82% full for this time of year.

Baker Hughes reported last Friday that the number of active US nat-gas drilling rigs in the week ending Dec 5 fell by -1 to 129, just below the 2.25-year high of 130 rigs set on Nov 28.  In the past year, the number of gas rigs has risen from the 4.5-year low of 94 rigs reported in September 2024.

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