U.S. natural gas futures opened the week sharply lower, with the front-month March contract on the New York Mercantile Exchange falling approximately 7% in early activity. The contract shed over 25 cents to trade near $3.17 per million British thermal units.
Traders pointed to revised weather models indicating a warmer-than-expected pattern across much of the United States through late February. This shift is expected to significantly reduce heating demand, a key price driver during the winter season.
Supply-side factors remain robust. Data indicates average gas output in the Lower 48 states has held above 106 billion cubic feet per day this month. Concurrently, the number of active gas-directed drilling rigs increased by five last week, reaching 130—the highest level in two and a half years—signaling continued strong production.
Demand projections tell a different story. Estimates suggest total U.S. gas demand, including exports, is forecast to drop from about 159.5 bcfd this week to 141.4 bcfd next week, with a further decline to 132.6 bcfd projected for the following week.
While flows to major liquefied natural gas export facilities have averaged a solid 18.5 bcfd for February, this supportive factor was overwhelmed by the bearish demand outlook. Market participants are now turning their attention to the U.S. Energy Information Administration's weekly storage report, due Thursday, for the next indication of inventory trends.
The combination of sturdy supply, falling consumption forecasts, and rising rig counts has created a decidedly bearish tilt for the market as it moves past the mid-winter period. However, analysts note that the market remains sensitive to any sudden return of cold weather or unexpected production disruptions, which could rapidly tighten balances.
