Natural Gas News: Weather Forecast Sparks Reversal as Futures Eye Counter-Trend Rally

February Natural Gas: Week in Review and Forecast

February Natural Gas futures posted a potentially bullish outside-move closing price reversal bottom on Friday in a thinly traded holiday week. The volume was light throughout the week; nonetheless, the chart pattern strongly indicates the buying was greater than the selling at current price levels.

Weather Forecast Fuels Late-Week Rally

After hitting a multi-month low early in the week at $3.467, the market rebounded into the weekly close at $3.877, up $0.211 or +5.76%. There was no weekly storage report from the U.S. Energy Information Administration (EIA) last week, so the turnaround rally was driven by weather forecasts showing colder temperatures ahead and aggressive short-covering.

The EIA said last week that its weekly storage report was rescheduled from December 24 to December 29 at 17:00 GMT due to the Christmas holiday. Pre-report consensus estimates are calling for a decline of 169 Bcf, which would be a larger drop than the 5-year average for the week of -110. As of December 12, natural gas inventories were down 1.2% y/y and were +0.9% above their 5-year seasonal average, signaling adequate natural gas supplies.

Production Remains Elevated Despite Bearish Fundamentals

In addition to the EIA storage report and weather forecast, natural gas traders were also eyeing production numbers. U.S. (lower-48) dry gas production stands at 113.2 Bcf/day as of Friday, putting it up 7.9% for the year.

This daily figure aligns with the EIA forecast from December 9, which raised the estimate for 2025 U.S. natural gas production to 107.74 Bcf/day, up from its November estimate of 107.70 Bcf/day. Production is currently near a record high, with active rigs recently posting a 2-year high, according to Baker Hughes.

On Tuesday, Baker Hughes reported that the number of active natural gas drilling rigs in the week-ending December 26 remained unchanged at 127, a little below the 2.25-year high of 130 reached on November 28. The number of gas rigs in 2025 is set to finish the year higher, rebounding from a 4.5-year low of 94 rigs reported in September 2024.

Demand Picture Shows Mixed Signals

On the demand side, lower-48 gas demand on Friday was 87.5 Bcf/day (-3.2% annually), according to BNEF (BloombergNEF). BNEF also estimated LNG net flows to U.S. LNG export terminals on Friday at 19.1 Bcf/day or unchanged for the week.

LNG demand may have also been impacted by the news that as of December 17, gas storage in Europe was 68% full, compared to the 5-year seasonal average of 78% full for this time of year. This below-average storage level suggests Europe may need to increase imports, potentially supporting U.S. LNG export demand.

Weather Forecast Takes Center Stage

Looking ahead to the week-ending January 2, the price action is expected to be controlled by the weather forecast. Colder temperatures in early-January are expected to offset the bearish supply situation. According to Atmospheric G2, forecasts shifted colder for December 31 to January 4 across the North and West.

The bullish weather forecasts also align with the weekly chart pattern. The closing price reversal bottom pattern is not a change in trend. However, if confirmed, it could trigger a 2 to 3 week counter-trend rally, equal to at least 50% of the current break from $5.022 to $3.467. This makes the retracement zone at $4.245 to $4.428 a potential target this week. The 52-week moving average at $4.414 also falls inside this area, making it important resistance.

A bullish weather forecast is likely to attract new short-sellers on a return to $4.245 to $4.428. Prices could rise beyond this zone if the cold weather forecast extends beyond January 4. Keep in mind that most professional traders are already watching the 10-15 day forecast for direction.

More Information in our Economic Calendar.