Natural Gas Rally Stalls: Nat-Gas Futures Face Mixed Signals from Inventory and Weather Patterns

Cold Front Offers Temporary Relief, But Storage Woes Persist

February Nymex nat-gas contracts inched upward by 0.26%, finding modest support as forecasters predict below-normal temperatures across the central and eastern United States through late January. The mild gains on Thursday suggest short-covering activity in the market, though broader headwinds continue to weigh on sentiment.

Inventory Report Delivers Disappointing News

The weekly EIA inventory snapshot revealed nat-gas storage declined by 71 bcf during the week ending January 9—a figure that fell short of the anticipated 91 bcf withdrawal and pales against the five-year seasonal average of 146 bcf. This smaller-than-expected inventory reduction signals ample nat-gas supplies remain in storage, with year-over-year comparisons showing levels up 2.2% and sitting 3.4% above the five-year average for this period. Across the Atlantic, European gas storage sits at just 52% of capacity versus the historical seasonal norm of 68%, presenting a stark contrast in supply tightness.

Production Dynamics Create Conflicting Pressures

The EIA’s latest production forecast suggests 2026 will see nat-gas output moderate to 107.4 bcf/day, down from the previous month’s projection of 109.11 bcf/day. Despite this outlook, current production continues near historical highs, with Lower-48 dry gas generation hitting 112.0 bcf/day (up 7.8% year-over-year) as of Thursday. Active drilling rig counts recently climbed to a 2.25-year peak of 130 units before settling at 124 rigs as of January 9, indicating sustained production capacity expansion.

Export Terminal Constraints Add Market Complexity

Operational challenges at major LNG facilities continue limiting nat-gas demand. Cheniere’s Corpus Christi terminal and the Freeport facility along the Texas coast have operated below typical feedgas rates this week due to electrical and piping complications. LNG export flows averaged 17.9 bcf/day through Thursday, down 6.1% week-over-week. These constraints inadvertently support nat-gas storage builds, a structural negative for price strength.

Demand Picture Remains Lackluster

Lower-48 gas demand registered 114.1 bcf/day on Thursday, representing a 3.2% year-over-year decline. Week-over-week electricity generation fell 13.15% according to the Edison Electric Institute, though the 52-week trend shows modest 2.5% growth to 4.29 trillion gigawatt hours.

Market Outlook: Recovery Faces Steep Headwinds

While nat-gas futures captured gains from cold-weather forecasts and reduced export flows, fundamental supply abundance and tepid demand growth suggest upside remains capped. The convergence of elevated storage levels, production resilience, and weakened consumption patterns indicates nat-gas market participants must weigh short-term weather tailwinds against persistent structural challenges.