Natural Gas Plunges to 6 Week Low on Milder Weather Forecasts

Weather Model Flip

The primary driver of the natural gas market—weather—has turned bearish. After weeks of expecting a deep freeze, updated meteorological models now show a warming trend for the key consuming regions in the US Midwest and Northeast. This has prompted traders to exit long positions, fearing that the anticipated spike in heating demand will not materialize.

Production Strength

Compounding the bearish weather news is the resilience of domestic production. Output from the Lower 48 states remains near record highs, ensuring that storage levels are replenished adequately. The market is currently oversupplied relative to the projected demand, removing the 'scarcity fear' that had supported prices above $5.00 earlier in the month.

Storage Outlook

While recent withdrawals were significant, the prospect of a warm end to December means future withdrawals could be lighter than average. This would leave the US with a healthy storage cushion heading into the heart of winter, significantly capping the upside potential for prices unless the weather outlook changes drastically again.