Volatility in the natural gas market remains elevated, with prompt-month prices oscillating sharply between recent extremes. The February contract expired at a recent high of $7.46 after trading as low as $3.01 just 2 weeks earlier. During its final two trading sessions, coinciding with both options and futures expiration, the February contract traded in a wide $1.75 range. On the first trading day of February, the March 2026 contract declined by more than $1, closing Friday, January 30, at $4.35 and subsequently falling to a low of $3.16 by Monday, February 2.

Pronounced natural gas market swings have created opportunities for both consumers and producers. Fig. 1-2 shows a historical price chart for a representative winter-weighted usage profile dating back to 2022 — prices reached a cyclical low of $3.17 near the end of the COVID-era demand downturn before rebounding to a peak of $5.16 approximately 9 months later. Since that period of heightened volatility, prices for the April 2026 to March 2027 winter-weighted term have generally traded within a $3.85 to $4.50 range.

On Friday, January 30, prices reached $4.59, presenting an attractive opportunity for producers to consider hedging a portion of their production. As of market close on February 2, prices declined by approximately 59 cents to $4, placing them slightly below the 25th percentile of historical pricing dating back to early 2022. Consumers should take note as prices move below the 25th percentile and consider layering in a portion of their gas requirements. When prices approach the 10th percentile — meaning, prices have historically been higher 90% of the time and lower only 10% of the time — consumers should actively consider securing a portion of their forward natural gas needs. While there’s no guarantee prices can’t move lower, given the continued influence of weather variability and broader global uncertainties, pricing in the lower decile of the historical range has provided a constructive signal in the past for customers evaluating incremental hedging of their natural gas exposure.

In early November, U.S. natural gas storage inventories peaked at approximately 3.96 trillion cubic feet (Tcf) before declining to 2.463 Tcf by the end of January 2026, placing inventories 27 billion cubic feet (Bcf) below the 5-year average. During the final week of January, the U.S. recorded a record withdrawal of 360 Bcf, surpassing the prior record of 359 Bcf in January 2018. This withdrawal might have been significantly larger had production losses mirrored those experienced during Winter Storm Uri, when freeze-offs exceeded 22 Bcf per day (Bcf/d) at their peak and persisted for nearly 2 weeks. By comparison, during the more recent Winter Storm Fern, peak U.S. production losses reached approximately 18 Bcf/d, with most disruptions confined to a single week. Given the persistence of below-normal temperatures during the first week of February, another above-average storage withdrawal is likely in the upcoming report.

Winter Storm Fern drove some of the highest sustained power prices ever recorded, with PJM exceeding 130,000 megawatts (MW) during an hour for 8 consecutive days — surpassing the previous winter record of 5 days. Despite the prolonged extreme cold, there was enough generation to meet demand, support reserves, and maintain exports, thanks to close coordination with generators on fuel and emissions, strong assistance from neighboring systems through emergency sales, and minimal transmission outages.

This event presented other challenges, including heightened uncertainty from extended cold affecting gas pipeline flexibility, oil fuel inventory, and emissions limitations. There was also misalignment between gas and electric market timing, resulting in advance commitment of gas power plants prior to the day ahead. Finally, load forecast accuracy was a challenge due to warmer-than-expected temperatures and prolonged school and government closures.

From January 22 to February 2, 2026, PJM operated under Conservative Operations, giving system operators more flexibility to make decisions to maintain grid reliability. During this time, PJM Dispatch reviewed and, when appropriate, recalled or cancelled non-critical generation and transmission maintenance outages, while also committing additional generation earlier or longer than economic signals alone would require. While these actions supported reliability, they caused a large amount of out-of-market costs and further exposed risks in the market.

PJM’s average locational marginal pricing (LMPs) for January 2026 was $144.28, with a max price of $2,314.58. For comparison, January 2025’s average LMP was $66.16, and its max rate was $335.12. Forward curves reacted, and January 2027 moved up 12% through the month.

PJM continues to advance initiatives that address concerns about load growth outpacing generation. These include:

• Load forecast improvements targeted for the 2027 forecast
• A “ Bring Your Own Generation” framework, to be in place by August 2026, with an upcoming stakeholder review of the FERC filing
• A curtailment framework to be in place by the end of 2026 to allow load without firm generation

Additional efforts include initiating discussions on a reliability backstop with no set deadline, conducting a holistic market review in the first half of 2026 (with timing to be determined), and submitting written feedback on a capacity price collar to the PJM Board by January 30, 2026.