Warmer December Forecast Triggers Natural Gas Selloff and Long Liquidations

Natural gas traders faced a challenging Friday session as meteorological forecasts painted a decidedly warmer picture for much of the United States. The January Nymex contract (NGF26) dropped 0.118 points, a 2.79% decline that extended the week’s significant downward momentum. Prices slid to their lowest point in six weeks, signaling a shift in market sentiment driven by supply and demand dynamics.

The root of the selloff lies in temperature expectations. Atmospheric G2 forecasters predicted that above-normal warmth would dominate western, central, and southern regions through December 21, with the southern half of the country experiencing widespread above-average conditions through December 26. These warmer scenarios reduce heating demand—a critical factor in winter gas consumption—triggering substantial long liquidation activity.

Supply Pressure Compounds the Weakness

On the production front, conditions remain robust and bearish for price support. The EIA recently elevated its 2025 natural gas production forecast to 107.74 bcf/day, up marginally from November’s 107.70 bcf/day estimate. Current US nat-gas production hovers near record levels, while active drilling rigs hit a 2-year peak. As of the week ending December 12, Baker Hughes reported 127 active nat-gas rigs—just shy of the 130-rig high set in late November.

Demand and Inventory Dynamics

Lower-48 dry gas production reached 112.5 bcf/day on Friday, representing a 7.1% year-over-year increase according to BNEF data. Conversely, regional gas demand softened to 110.6 bcf/day, down 3.4% annually. LNG export activity showed a modest pullback, with net flows to US export terminals estimated at 18.1 bcf/day, a 3.0% weekly decline.

A silver lining appeared in Thursday’s weekly EIA storage report. Natural gas inventories for the week ending December 5 fell by 177 bcf—exceeding the market consensus of 170 bcf and surpassing the 5-year weekly average draw of 89 bcf. This larger-than-expected withdrawal suggests underlying demand strength, even as overall inventory positions remain adequate. As of December 5, year-over-year inventory levels held unchanged, though seasonal comparisons show supplies running 2.8% above their 5-year average.

Power Generation and Storage Trends

US electricity output provided a minor bullish counterpoint. The Edison Electric Institute reported that lower-48 electricity generation in the week ended December 6 climbed 2.3% year-over-year to 85,330 GWh. Annual electricity output through that date reached 4,291,665 GWh, up 2.84% compared to the prior year.

Internationally, European gas storage conditions remain relatively constrained. As of December 10, European storage facilities were 71% full—10 percentage points below the 81% seasonal average for this period, highlighting tighter global supply balances.

The market now awaits the next catalyst, whether from weather pattern shifts, production adjustments, or demand surprises, as natural gas futures navigate persistent volatility.