Natural gas markets have moved lower this month as a combination of softer weather-driven demand and a swift recovery in production following Winter Storm Fern weighs on prices. In a client note, Morgan Stanley attributed most of the recent decline to a milder late-February pattern that has cut into heating requirements.
The bank's analyst Devin McDermott reported that prices "have pulled back ~29% so far in February alongside a milder shift in weather," and highlighted that the abrupt reversal in heating demand has been a principal driver of the drop.
Supply response and basin activity
Morgan Stanley signaled that while the overall supply-demand balance looking toward summer still "skews constructive," the strength of recent drilling activity in the Haynesville introduces fresh upside risks to supply. The note points out that the basin's rig count has risen by "+10 in the past month to 52," a level the firm estimates is "~10% above our est of what the market needs this year."
That uptick in activity has coincided with a measurable increase in output. The bank states Lower 48 dry gas production is running at "approximately 107.9 bcf/d month-to-date, up 1.5 bcf/d versus the January average."
Weather and price action
Morgan Stanley also emphasized a notable swing in weather. After a late-January cold snap that briefly pushed Henry Hub to about "$7/mmbtu," the firm says weather has "flipped milder," with heating degree days roughly "9% below the 10-year average." Prompt Henry Hub has retreated to around "$3.10."
LNG demand and seasonal considerations
On the demand side, the bank observed a quick recovery in LNG feedgas flows and reiterated expectations for growth. Morgan Stanley continues to forecast "~3.8 bcf/d of LNG growth in '26," explicitly including an early March start for Golden Pass in its outlook. Nonetheless, the interplay between rebounding supply and a softer-than-expected February has left a more mixed near-term picture.
Looking to summer, Morgan Stanley noted one potential offset to the supply gains: weak hydro conditions in the western U.S. could raise gas-fired power burn by an estimated "~0.5 bcf/d," which may provide some price support later in the year.
What this means for markets
The combination of a rapid production rebound, a higher-than-expected rig count in a key basin, and a milder heating season have pushed prompt prices substantially lower this month. At the same time, recovering LNG demand and possible increases in power-sector consumption linked to hydro conditions mean the path forward remains mixed rather than decisively bearish or bullish.