Natural Gas News: Can Weather Volatility Reverse the Bearish Market Outlook?

Colder Weather and Robust Storage Draw Spark Volatility

U.S. natural gas futures saw a roller-coaster ride last week, with a colder weather forecast and a significant storage draw driving early gains, followed by a late-week retreat due to warming weather projections. The front-month January Nymex contract settled at $3.280, up 6.63% for the week, as traders navigated shifting demand expectations and supply dynamics​​.

Early Week Momentum: Cold Front Boosts Demand Outlook

The week opened with a surge in natural gas prices as weather forecasts turned colder, particularly across the Midwest and Northeast. Heating degree days (HDDs) rose sharply, driving demand expectations higher. The Energy Information Administration (EIA) supported this bullish sentiment, reporting a record 190 Bcf storage withdrawal for the prior week, significantly above the five-year average draw of 71 Bcf​​.

Additionally, liquefied natural gas (LNG) feed gas deliveries increased, while production levels edged lower, adding further support to prices. However, the rally hit resistance at $3.559, signaling that the market needed additional catalysts to sustain upward momentum​​ toward the October top at $3.647.

Midweek Euphoria Fades Amid Profit-Taking

Midweek gains were capped as warmer weather forecasts for late December tempered demand expectations. Analysts noted a shift in forecasts for December 23-28, with above-normal temperatures expected across much of the U.S. This reversal saw traders take profits, pushing prices lower as demand fears re-emerged​​.

Despite the warmer outlook, a bullish backdrop of elevated electricity demand—up 10.87% year-over-year—and LNG exports above 14 Bcf/day provided some underlying support. However, with U.S. gas production still robust at over 104 Bcf/day and storage inventories 4.6% above their five-year average, bearish fundamentals loomed large​.

Europe and Global Trends Add Complexity

Across the Atlantic, European gas prices declined, driven by warmer weather forecasts and increased power generation from nuclear plants in France. EU storage levels, currently 80% full, reflected ample supply, further dampening global bullish momentum for natural gas​.

Decisive Forecast: Neutral to Bearish Near Term

The market appears poised for consolidation in the near term. While the record storage draw and colder weather offer temporary support, the projected warm spell through the end of December could cap gains. Unless new catalysts emerge, such as a significant cold snap or unexpected supply disruptions, natural gas prices are likely to range-bound with a bearish tilt.

Traders should monitor weather updates closely as any shift back to colder trends could reignite bullish momentum. For now, resistance at $3.444 remains a critical barrier, with support at $3.118 acting as a key level to watch. Look for a potentially bullish tone to develop on a sustained move over $3.444 and for the bearish trend to resume on decisive selling pressure under $3.118.

More Information in our Economic Calendar.