(Investing) – The decline in U.S. natural gas prices appears excessive given the market’s underlying fundamentals, according to Morgan Stanley.
Analyst Devin McDermott said prices have retreated around 35% from December highs, but “prices have pulled back too far,” even after accounting for milder weather and a brief supply pickup.
Morgan Stanley now forecasts Henry Hub at $4.25 in 2026, “~22% above futures.”
Natural gas briefly traded above $5 in early December, supported by stronger-than-expected storage levels, record LNG flows and a cold start to winter.
McDermott noted that prices have since fallen to roughly $3.40 as weather forecasts turned warmer and supply rose modestly.
However, the analyst believes those trends have faded, noting production averaged only “~0.2 bcf/d higher month-over-month” in December and has already fallen “~0.3 bcf/d in January.”
The firm warned that the current strip is “too low to drive supply growth the market needs,” with the gas rig count down by three over the past month, including “-4 in the Haynesville.”
On the demand side, LNG feedgas continues to rise, reaching “~19.3 bcf/d this week,” driven by Plaquemines and Freeport.
Morgan Stanley continues to expect 3.8 bcf/d of LNG demand growth in 2026 and anticipates Golden Pass will begin producing LNG soon.
The bank added that storage expectations have increased modestly, with end-March 2026 estimates rising from 1.7 Tcf to 1.9 Tcf.
Still, Morgan Stanley argues the long-term balance supports higher prices, stating: “Even with a softer winter, we see upside in the months ahead. Buy the pullback.”
