Looking to the Futures
Natural Gas Pulls Back on Higher Temperatures
Weather provides the most uncertainty when it comes to forecasts of natural gas prices. Given the cyclical tendencies of natural gas futures, the commodity is always subject to lining up supply with the projected demand for the upcoming season.
As we enter the winter season, space heaters and furnaces are fired up to warm buildings and houses causing demand to be higher than it would be during the summer. This year, initial forecasts for a colder winter drove production into December, while higher than projected temperatures have caused demand to fall short of expectations.
Although December did start cold, recent warmer than expected weather conditions have allowed natural gas storage to be rebuilt, causing the commodity to retract to a 7-week low. The Environmental Information Agency (EIA) raised their forecast for 2025 U.S. natural-gas production to 107.74 bcf/day last Tuesday. An increase from the November estimate of 107.70 bcf/day.
There is still time for the weather to change. On the 15th, the EIA did announce changes to their estimates for residential energy expenditures this winter. The report now signifies that we may see some colder than expected temperatures through the end of December based on the National Oceanic and Atmospheric Administration's forecast for the current month. The NOAA now expects December to be 8% colder than the average of the past 10 Decembers.
Long term demand forecasts for liquified natural gas are projected to increase. Over $50 billion is expected to flow into natural gas infrastructure over the next 5 years. Cargoes were up 22% to 69 million tons in the first eight months of 2025, according to trade intelligence provider Kpler.
Heating oil may also see a boost from the NOAA weather forecast, but only time will tell. After hitting a high of 2.7172 on November 19th, January heating oil (/HOF26) retraced over 20 percent to around 2.144. U.S. distillate stocks are up by 1.7 million barrels to 118.5 million barrels per the EIA's weekly heating oil and propane report.
Technicals
Looking at the January Natural Gas contracts (/NGF26) on a one year, one day chart, we can see they last traded at 3.979 after pulling back over 25 percent from the previous high of 5.496. Still holding above the 200-day simple moving average, which comes in at 3.578, but well below the 9, 20, and 50 – day moving averages. The 50-day SMA, being the lowest of the three, comes in at 4.095.
RSI remains close to the oversold level, coming in at 39.39 while IV percentile comes in at 69%, which means that 175 of the past 252 trading days have been below current IV.
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