U.S. natural-gas consumption hit a record in January. So why are prices falling?

The shift lower in prices is due to a “lack of new buying interest and the resilience of short shellers,” said Brian Swan, senior commodity analyst at Schneider Electric, in a daily note.

“Mild weather forecasts are keeping national demand for natural gas low, maintaining low prices” for the March contract, he said, though colder conditions expected in mid-February might increase demand later this month.

Traders are “adapting to changing weather forecasts,” said Swan. Recent cold predictions in February are likely to temporarily lift the market, without altering the overall downward trend,” he said.

In a monthly report released Tuesday, the Energy Information Administration showed that U.S. dry natural-gas production, which is consumer-grade natural gas, fell to 102 billion cubic feet (bcf) per day in January, from a monthly record of 106 bcf per day in December.

Natural-gas consumption, however, climbed to 118 bcf per day in January, the “most in any month on record,” the EIA said.

A burst of cold weather increased demand for heating, and reduced natural-gas production, leading to high inventory withdrawals, according to the EIA.

Despite the high inventory withdrawals in January, the EIA expects domestic natural-gas inventories to remain above the previous five-year average. It expects roughly 15% higher natural-gas inventories at the end of this winter, compared with the five-year average, citing forecasts for milder weather.

Domestic natural-gas consumption, meanwhile, is expected to fall below the average in February and March of this year as a result of milder weather, the EIA said.

It sees 4% fewer heating degree days than the prior 10-year average for those two months. Heating degree days are defined as a measure of how cold a location is over a period relative to a base temperature.

Against that backdrop, the government agency said U.S. spot natural-gas prices are likely to average $2.65 per million British thermal units in 2024, which is down 0.2% from the forecast released in January, and $2.94 in 2025, down 0.1% from the previous forecast.

“The cold weather last month sent us into record-setting natural gas consumption territory for a few days, but we expect less-than-average consumption going into February and March,” said Joe DeCarolis, EIA administrator, in a press release.

He warned, however, that “any late-winter cold snaps could introduce significant volatility back into the natural gas market.”