Natural Gas Prices Reverse Course: Production Surge Overshadows Winter Storm Impact

March Nymex natural gas futures closed sharply lower on Monday, plunging -25.65% (-1.117) to settle at fresh 3-week lows. The dramatic reversal from last week’s 3-year peak highlights the volatile pressures reshaping energy markets as US production ramps back up and weather patterns shift warmer across the continent.

Storm Recovery Floods Markets with Gas Production

The rebound in US natural gas production served as the primary driver of Monday’s sharp sell-off. Production volumes surged to 111.6 bcf/day—the highest level in nearly two weeks—as operations that were knocked offline by the previous week’s severe winter storm came back into service. The scale of the production disruption was substantial: approximately 50 billion cubic feet of gas was forced offline during the storm event, representing roughly 15% of total US natural gas output during that period.

According to BNEF data, Lower-48 state dry gas production on Monday reached 111.6 bcf/day, marking a +5.7% year-over-year increase. The recovery in supply stands in sharp contrast to the production bottlenecks that had driven prices to astronomical levels just days prior. That weather-induced disruption, combined with extreme cold that triggered freeze-ups across Texas and other major producing regions, had temporarily lifted natural gas prices into territory not seen in three years.

Weather Forecasts Turn Warmer, Easing Demand Pressure

Just as supply recovered, demand fundamentals shifted lower. The Commodity Weather Group released updated 10-day forecasts indicating a warming trend across the US weather pattern—a development that immediately dampened expectations for natural gas heating consumption. This dual relief—both from the supply side and demand side—created significant selling pressure that accelerated losses throughout the trading session.

Demand data from BNEF showed Lower-48 state gas demand on Monday at 117.3 bcf/day, though this represented a substantial +34.4% year-over-year surge, the warmer forecast suggested such elevated consumption levels would not persist.

The contrast in regional patterns became apparent when examining LNG export flows. Estimated net flows to US natural gas export terminals on Monday totaled 18.4 bcf/day, posting a remarkable +85.9% week-over-week increase. This LNG strength provided some counterweight to domestic demand concerns, though the warming weather outlook limited its market support.

Supply Fundamentals Present Mixed Signals

Inventory levels continue to signal ample natural gas supplies throughout the system. Weekly EIA data showed that natural gas inventories for the week ending January 23 drew down by 242 bcf—larger than consensus expectations of -238 bcf and above the 5-year weekly average draw of -208 bcf. Despite this larger-than-average draw, storage levels as of January 23 sat +9.8% year-over-year and +5.3% above their 5-year seasonal average, confirming abundant supply cushions.

European storage paints a different picture. As of January 31, gas storage on the continent reached only 41% capacity, trailing significantly below the historical 5-year average of 57% for this time of year. This divergence highlights the regional nature of natural gas supply dynamics.

Looking ahead, the longer-term supply outlook provides some support for prices. The EIA in mid-January reduced its 2026 production forecast to 107.4 bcf/day from the prior month’s estimate of 109.11 bcf/day. However, this projection contrasts with current production sitting near record highs, with active US drilling rigs recently posting 2-year highs. Baker Hughes reported that active natural gas rigs in the week ending January 30 rose by 3 to reach 125 rigs—modestly below the 2.25-year high of 130 rigs set in late November.

Drilling Activity Remains Elevated Despite Price Headwinds

The elevated rig count underscores persistent drilling activity despite the recent price collapse. In the year-long comparison, gas rig counts have rebounded substantially from the 4.5-year low of 94 rigs recorded in September 2024. This recovery in drilling infrastructure suggests that producers remain committed to natural gas expansion despite current price weakness.

Electricity generation data provided additional headwinds. The Edison Electric Institute reported that US Lower-48 electricity output in the week ended January 24 fell -6.3% year-over-year to 91,131 GWh, reducing power-driven demand for natural gas generation. However, the 52-week output trend remained supportive, with cumulative electricity generation up +2.1% year-over-year to 4,286,060 GWh over the trailing 52-week period.

The combination of recovered production, warmer weather forecasts, and ample storage inventories outweighed supportive factors from strong LNG exports and elevated near-term demand. Natural gas markets face a fluid backdrop where supply fundamentals continue shifting faster than expectations, leaving price direction contingent on the speed of further production normalization and actual demand response to the warming forecast.