After weeks of significant gains, U.S. natural gas prices at the Henry Hub facility plunged on Friday, dropping over 7% to $3.39 per million British thermal units (MMBtu), the lowest in a week.

The sharp decline was driven by milder-than-expected cold weather forecasts and a smaller-than-anticipated inventory withdrawal, which weighed on near-term demand expectations and erased recent momentum.

Latest Natural Gas Storage Data Reveals Softer Pull

The Energy Information Administration reported Friday that natural gas inventories decreased by 116 billion cubic feet (Bcf) in the week ending Dec. 27.

While this draw was larger than the prior week's 93 Bcf decline, it fell short of analyst expectations for a 127 Bcf pull. For comparison, the five-year average for this time of year shows a decrease of 104 Bcf, while the same period last year saw a much smaller draw of 35 Bcf.

Despite the lower-than-expected draw, this marks the seventh consecutive week of inventory declines as colder conditions drive heating demand.

Frosty Weather Conditions Persist, But Extreme Risks Ease

The National Weather Service continues to warn of a major winter storm impacting large portions of the central Plains, Midwest and eastern U.S. through Monday. Heavy snowfall and icing are expected along key corridors, including Interstate 70 between Kansas and Indiana, and lake-effect snow will persist around the Great Lakes.

Yet, forecasts for the eight- to 15-day period turned milder, according to NatGasWeather, with American and European weather models projecting eight to 12 fewer heating degree days (HDDs) than prior estimates. This could result in less severe cold across the eastern U.S. for mid-January, moderating demand expectations.

Eli Rubin, senior analyst at EBW Analytics Group, told NaturalGasIntel that, although the market remains tight, "a severe market shortage and Henry Hub price dislocation higher to double digits appears less likely."

Natural Gas Sector Reactions

Despite the sharp drop in natural gas prices – as tracked by the United States Natural Gas Fund LP (NYSE:UNG) – stocks of key companies in the sector demonstrated resilience on Friday.

EQT Corp. (NYSE:EQT), the largest natural gas producer in the U.S., saw its shares edge up 0.7%, while Cheniere Energy Inc. (NYSE:LNG), the leading U.S. exporter of liquefied natural gas (LNG), gained 1.8%, eyeing its fifth consecutive session of growth.

Midstream players also performed well, with Kinder Morgan Inc. (NYSE:KMI) rising 1.2% to reach levels last seen in late November, and Williams Companies Inc. (NYSE:WMB) climbing 1.6%.

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