Natural Gas Markets Navigate Weather Forecast Signals as Supply Blocks Persist

March Nymex natural gas futures edged higher in recent trading, recovering ground after Monday’s sharp decline. The near-term recovery reflects conflicting weather signals across the nation, creating a complex landscape of competing market pressures that will shape demand in the coming weeks.

Weather Forecast Divergence Supports Price Movement

The Commodity Weather Group’s latest forecast presents a mixed picture: above-normal temperatures are expected across the Midwest and Southeast, but the mid-Atlantic and Northeast face colder-than-normal conditions through mid-February. This weather divergence is critical—above-normal warmth depresses heating demand in the South and Midwest, while cold snaps in the Northeast support demand. The interplay of these regional patterns typically blocks consistent directional pricing, creating volatility.

Recent weeks underscore weather’s powerful influence on energy markets. Just last week, a significant winter storm and Arctic cold blast drove natural gas prices to a three-year high, compelling the market to price in surge demand for heating fuel. Extreme cold froze production wells across producing regions, particularly Texas and surrounding areas, taking approximately 50 billion cubic feet of daily output offline—representing roughly 15% of total US production capacity.

Supply Blocks and Production Reality

Current production data reveals the tension between short-term disruptions and longer-term trends. US lower-48 dry gas production stands at 110.5 bcf/day, up 5.1% year-over-year, though production gains remain offset by increased demand. Demand reached 110.6 bcf/day last week, an impressive 26.7% spike compared to the prior year, driven by heating needs during the cold period.

However, the demand picture grows more complex when examining broader trends. The EIA recently adjusted its 2026 US dry gas production forecast downward to 107.4 bcf/day from the previous estimate of 109.11 bcf/day—a notable downward revision that suggests supply blocks may persist longer than initially expected. Even as active drilling rigs have recently hit two-year highs, production projections are tightening, offering some price support.

Export Flows and Inventory Dynamics

LNG export demand remains robust, with net flows to US liquefaction terminals reaching 19.1 bcf/day this week, up 43.8% from the previous week. This surge reflects strong international demand for US natural gas, providing an outlet for domestic supplies.

The latest EIA inventory report painted a supportive picture for prices. Gas inventories for the week ending in late January fell by 242 bcf, exceeding market consensus expectations of -238 bcf draw and the five-year average draw of -208 bcf. Nonetheless, inventories remain substantially elevated year-over-year, up 9.8%, and sit 5.3% above seasonal averages, signaling abundant supplies available to meet demand spikes.

European storage provides another reference point for global supply adequacy. Gas storage in Europe currently stands at 41% full, notably below the 57% seasonal average for this time of year, suggesting tighter European supply conditions are likely maintaining elevated LNG demand and supporting US export economics.

Drilling Activity and Market Outlook

Baker Hughes data shows active US natural gas drilling rigs numbered 125 in the most recent week, up from the week prior but still modestly below the 2.25-year high of 130 rigs set in late November. The trajectory has shifted sharply since mid-2024, when rigs fell to a 4.5-year trough of 94, indicating industry confidence has recovered despite cyclical volatility.

As a headwind, US electricity output declined 6.3% year-over-year in the latest week to 91,131 GWh, reflecting mild regional temperatures and reduced cooling/heating demand outside the cold-hit Northeast. Over the full 52-week period, however, electricity generation rose 2.1% year-over-year, underscoring that seasonal patterns continue to dominate market direction.

The Bottom Line

Natural gas prices remain caught between competing weather forecast signals and structural supply-demand dynamics. Conflicting regional temperatures block consensus pricing direction, while EIA production revisions and modest inventory draws keep upside limited. The market forest of signals—warm southern weather meeting cold Northeast conditions, ample inventories alongside production forecast cuts, and steady LNG export demand—will continue to determine whether the near-term recovery sustains or falters as winter winds down.