Natural gas prices moved sharply lower after last week’s strong rally, with MCX natural gas futures slipping over 1% while global benchmarks also corrected steeply. The decline comes as supply concerns eased rapidly and weather-driven demand expectations weakened, reversing the sharp gains triggered by last week’s winter storm in the US.
Production recovery weighs on prices
The biggest factor behind the fall is the recovery in US natural gas production. Output rebounded to around 111.6 billion cubic feet per day, the highest level in nearly two weeks, as production that was knocked offline by last week’s winter storm returned to service. During the peak of the cold wave, nearly 50 billion cubic feet of gas—about 15% of total US production—went offline, creating a temporary supply shock.
As those disruptions eased, markets quickly repriced the supply outlook, sending prices lower.
Warmer weather outlook reduces demand
Losses accelerated after updated forecasts showed a warmer 10-day weather outlook for the US, which could significantly reduce heating demand. Natural gas prices had surged to a three-year high last Wednesday on expectations of prolonged cold weather and strong heating demand, but the shift toward milder temperatures removed a key bullish trigger.
With heating demand expected to soften, traders moved to unwind long positions built during the cold-weather rally.
Profit booking after a sharp rally
Natural gas had risen sharply last week, driven by extreme weather conditions, production freeze-ups, and strong demand. Once those risks faded, profit-taking set in, leading to a sharp correction. In global markets, March NYMEX natural gas contracts plunged over 25% in a single session, highlighting how quickly sentiment turned once supply and weather concerns eased.
Storage levels remain comfortable
While recent inventory data showed a larger-than-expected draw, overall storage levels remain comfortably above normal. US natural gas inventories are still nearly 10% higher year-on-year and over 5% above the five-year seasonal average, signaling that supplies remain ample despite recent drawdowns.
In Europe, gas storage levels are also relatively comfortable at around 41% full, even though they remain below the seasonal average. These inventory levels have limited fears of prolonged supply tightness.
Rising rig count adds supply pressure
Adding to the bearish tone, the number of active US natural gas drilling rigs has been rising. Recent data shows gas rigs at around 125, close to a multi-year high, reinforcing expectations that supply growth could continue in the coming months.
Although longer-term forecasts point to slightly lower production growth in 2026, current output remains near record highs, keeping near-term prices under pressure.
Demand indicators turn mixed
Electricity demand data has also weighed on sentiment. Weekly US electricity generation fell on a year-on-year basis, suggesting softer power-sector gas demand, even though longer-term electricity output trends remain positive.
Meanwhile, LNG exports remain strong, but have not been enough to offset concerns around rising domestic production and easing weather-driven demand.
Bottom line
Natural gas prices are falling primarily due to:
- Recovery in US production after storm-related disruptions
- Warmer weather forecasts reducing heating demand
- Profit booking after a sharp, weather-driven rally
- Comfortable storage levels and rising rig counts
While short-term pressure remains, prices are still sensitive to weather updates and any fresh supply disruptions, keeping volatility elevated in the natural gas market.
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