Natural Gas News: Bearish Outlook as Warming Trends and High Storage Levels Persist

Supply and Weather Drive Bearish Momentum

Natural gas futures saw a significant decline last week, dropping 8.53% to close at $3.076/MMBtu. Warmer mid-December forecasts and high supply levels dominated market sentiment, pushing prices below key technical support levels. Early-week demand driven by cold weather was insufficient to offset bearish pressures from production, inventory, and long-range weather trends.

Weather Moderates Demand

Cold fronts across the Midwest and East supported heating demand early in the week, with temperatures dropping into the single digits and subzero levels in some regions. However, long-range weather models for December 16-20 indicated a warming trend for much of the northern U.S. and Texas, where milder conditions are expected to dominate. These forecasts weakened expectations for sustained high demand, tempering bullish sentiment​​.

Production and Inventories Maintain Pressure

Natural gas production remains strong, averaging over 104 Bcf/day, with LNG flows steady at 14.1 Bcf/day. Despite strong demand from freezing temperatures early in the week, the Energy Information Administration (EIA) reported a smaller-than-expected 30 Bcf storage withdrawal, below market expectations of 38 Bcf. Total working gas in storage now stands at 3,937 Bcf, 284 Bcf above the five-year average and 185 Bcf higher than last year. This oversupply continues to cap prices, even as seasonal draws have begun​​.

Geopolitical and Export Influences

Global dynamics add complexity to natural gas pricing. Europe faces potential disruptions from the expiration of the Russia-Ukraine pipeline agreement, which could impact supply to key European nations. This uncertainty has underscored the importance of U.S. LNG exports to Europe, helping to maintain export demand. However, weaker European gas prices have also added downward pressure on U.S. futures, demonstrating the interconnected nature of global markets​​.

Market Forecast

The market outlook remains bearish in the short term. Prices are nearing critical support levels on the daily chart at $2.993, with further downside potential toward $2.762 if bearish fundamentals persist.

Warmer weather forecasts and elevated inventories are likely to keep prices under pressure. For a recovery, prices must break above $3.118, which could lead to a move toward resistance at $3.444. However, this would require a significant catalyst, such as an unexpected cold front or larger-than-expected inventory withdrawal.

Traders should focus on weather updates, storage reports, and geopolitical developments as key drivers for potential volatility in the coming weeks​​​.

More Information in our Economic Calendar.