Mild Temperatures Weigh on Natural Gas Prices in Early February

Warmer-than-expected weather across most of the United States is putting downward pressure on natural gas prices today, as February progresses. The natural gas market is experiencing headwinds from multiple directions, with forecasts for above-average temperatures significantly reducing the outlook for heating demand. This combination of factors is pulling down the price of natural gas, marking the third consecutive session of declines for March Nymex natural gas futures, which recently posted their lowest levels in four weeks.

According to the Commodity Weather Group, milder-than-normal conditions are anticipated to persist across the majority of the US through mid-February, with the notable exception of coastal regions along the Pacific and Atlantic. This shift away from the severe cold that gripped the nation in late January represents a fundamental change in demand dynamics for the natural gas market.

Weather Forecast Shifts Demand Dynamics Lower

The contrast with late January is stark. Just weeks earlier, a devastating Arctic storm had sent natural gas prices soaring to their highest level in three years. That extreme weather event disrupted production across major gas-producing regions, with freeze-ups in wells causing approximately 50 billion cubic feet of natural gas—roughly 15% of total US production—to go offline. The crisis drove urgent heating demand that spiked prices significantly.

Today’s environment is decidedly different. Milder conditions reduce the pressing need for natural gas heating, diminishing demand pressure that had previously supported prices. Recent measurements show US Lower-48 dry gas demand at 94.9 bcf/day, down 11.2% year-over-year according to BNEF data. This demand weakness is a critical factor weighing on price levels for natural gas going forward.

Production Expansion Compounds Price Pressure

On the supply side, natural gas production continues to climb, adding to the downward pressure on prices. The Energy Information Administration (EIA) recently raised its production forecast for 2026 US dry natural gas output to 109.97 bcf/day, up from the previous month’s estimate of 108.82 bcf/day. Current production levels remain near record highs, with US Lower-48 dry gas production measured at 112.8 bcf/day, representing a 6.8% increase year-over-year.

The expansion in drilling activity underscores production momentum. Active US natural gas rigs reached a 2.5-year high on recent counts, with Baker Hughes reporting that drilling rigs rose by five units to reach 130 rigs in the week ending February 6—matching the elevated levels set back in November. This represents a substantial increase from the September 2024 low of 94 rigs. Robust drilling activity signals producers’ confidence in market conditions, even as it contributes to supply growth that offsets demand strength.

LNG export activity, while steady, does not offset the broader supply-demand balance. Estimated net flows to US LNG export terminals measured 19.5 bcf/day recently, up 2.6% week-over-week, providing an outlet for excess supply.

Inventory Levels and Storage Considerations

Inventory dynamics offer some nuance to the bearish price picture. The EIA reported that natural gas inventories for the week ended January 30 fell by 360 bcf—a record-sized draw, though still smaller than market consensus expectations of 378 bcf. Notably, this decline exceeded the 5-year weekly average draw of 190 bcf, suggesting ongoing supply tightness despite price weakness.

As of late January, natural gas inventories stood 2.8% higher year-over-year but remained 1.1% below their 5-year seasonal average, pointing to relatively constrained supply conditions on a seasonal basis. The situation contrasts with Europe’s storage picture: as of early February, European gas storage was only 37% full, compared to the typical 5-year seasonal average of 54% for this time of year, reflecting tighter global conditions.

Electricity Output Provides Limited Support

One bright spot for natural gas prices comes from electricity generation. The Edison Electric Institute reported that US Lower-48 electricity output in the week ended January 31 rose 21.4% year-over-year to 99,925 GWh. Over the trailing 52-week period, electricity output climbed 2.39% year-over-year to 4,303,577 GWh. Increased power generation supports some gas demand, though weather-driven heating demand remains the dominant seasonal driver for natural gas consumption.

Market Outlook

The current price of natural gas today reflects a delicate balance between structural supply growth and seasonal demand weakness. While milder temperatures are the immediate headwind, the expansion of production capacity and rising drilling activity suggest that supply pressures may persist. However, the below-average inventory levels and potential for demand rebounds remain factors that could support natural gas prices if weather patterns shift or geopolitical conditions change the global energy picture. For now, the mild weather forecast continues to dominate market sentiment, keeping downward pressure on natural gas pricing throughout February.