(Investing) – Natural gas prices have dropped sharply this month, a move Morgan Stanley links to milder late-February weather and a rapid recovery in supply following Winter Storm Fern.
Analyst Devin McDermott wrote in a note to clients that prices “have pulled back ~29% so far in February alongside a milder shift in weather,” adding that the recent reversal in heating demand has been a major factor.
Morgan Stanley believes the broader supply-demand outlook into summer “still skews constructive,” but warned that a sharp pickup in drilling in the Haynesville has introduced new risks.
The firm noted that the basin’s rig count “is up +10 in the past month to 52,” which is now “~10% above our est of what the market needs this year.”
According to the note, this rise in activity has helped push Lower 48 dry gas production to “approximately 107.9 bcf/d month-to-date, up 1.5 bcf/d versus the January average.”
The bank also pointed to a notable swing in weather conditions. After a late-January cold snap briefly lifted Henry Hub to “~$7/mmbtu,” Morgan Stanley said weather has “flipped milder,” with heating degree days running around 9% below the 10-year average. Prompt Henry Hub has fallen back to roughly $3.10.
LNG feedgas demand has recovered quickly, and Morgan Stanley continues to expect “~3.8 bcf/d of LNG growth in ’26,” including an early March start for Golden Pass. But the combination of rebounding supply and a softer February has created a more mixed picture.
Even so, the firm said weak hydro conditions in the western U.S. could boost gas-fired power burn by “~0.5 bcf/d” this summer, offering some support later in the year.
