Natural gas futures are heading into 2026 on a tear, with January Nymex contracts surging as the market grapples with tightening inventory levels. According to Natural Gas Intel, January natural gas futures rallied strongly, buoyed by a large storage withdrawal reported by the U.S. Energy Information Administration in a rare Monday release and supportive demand forecasts heading into the new year.
The rally reflects a significant shift in underground storage dynamics. Natural Gas Intel reported that natural gas futures trended higher after the latest federal inventory data showed underground stocks slipped into deficit territory relative to historical norms. This marks a notable tightening in what had been a relatively well-supplied market, suggesting that winter demand could strain available supplies in the weeks ahead.
The storage withdrawal comes at a critical moment for the energy sector, which is already navigating geopolitical tensions and production challenges across multiple regions. The timing of the EIA's rare Monday release—necessitated by the Christmas holiday schedule—underscores the importance market participants are placing on inventory data as winter demand peaks.
Oil Markets Navigate Geopolitical Headwinds
While natural gas captures attention with its supply tightness, crude oil markets are dealing with their own set of pressures. According to Reuters, oil prices retreated slightly as investors grew wary of Russia-Ukraine tensions, though the broader trend has been volatile. Reuters reported that oil settled up over 2% on dented peace hopes in Ukraine and tensions in Yemen, illustrating how geopolitical risks continue to influence energy markets.
The geopolitical uncertainty extends beyond price movements. Reuters reported exclusively that Kazakhstan's oil output has fallen after a Ukraine drone attack on a major terminal, demonstrating how regional conflicts are creating real supply disruptions. These production challenges come as the Permian Basin, which OilPrice.com noted accounts for nearly half of total U.S. oil production in both 2024 and 2025, faces its own operational headwinds.
The Permian's Growing Wastewater Challenge
Behind the headline production numbers lies a mounting infrastructure problem. According to OilPrice.com, the Permian Basin is drowning in its own wastewater, with the industry running out of places to store it. The outlet explained that hydraulic fracturing, the dominant extraction method in the Permian, is a water-intensive process that involves injecting chemicals and sand into horizontal wells to open up oil-bearing formations. As production has scaled up, so has the volume of wastewater requiring disposal—a challenge that threatens to constrain future output if not addressed.
This operational constraint adds another layer of complexity to energy markets already dealing with geopolitical disruptions and shifting supply dynamics. While crude inventories remain relatively stable—the EIA reported that crude oil inventories increased by 0.4 million barrels during the week ending December 19, bringing commercial crude stockpiles to 424.8 million barrels, still about 3% below the five-year average—the underlying production challenges suggest tighter conditions could emerge if geopolitical tensions persist or operational issues worsen.
Looking Ahead to 2026
As markets head into 2026, the divergence between natural gas and crude oil dynamics is striking. Natural gas faces near-term supply tightness with storage in deficit territory, while crude oil grapples with geopolitical risks and production constraints. The natural gas market's strong rally into year-end suggests traders are pricing in the possibility of sustained winter demand meeting constrained supplies—a scenario that could keep prices elevated through the first quarter.
For energy investors and policymakers, the message is clear: the transition into 2026 will be shaped by real supply constraints rather than abstract market forces. Whether it's the Permian's wastewater challenges, Ukraine's impact on global oil flows, or natural gas storage levels slipping into deficit, the energy sector is operating with less margin for error than it did just months ago.
Reporting based on coverage from Natural Gas Intel, Reuters, OilPrice.com, and the U.S. Energy Information Administration.