Goldman Sachs reduced its expectations for U.S. natural gas prices as warmer weather and stagnating export capacity add to higher-than-usual inventories, with the market entering a bearish cycle this year and the next.

The Wall Street bank Friday lowered its forecast for Summer-2023, Winter-2023-24, and Summer-2024 natural gas futures on the New York Mercantile Exchange to $3.7, $3.6, and $3.2 per metric million British thermal unit (mmBtu), respectively.

U.S. natural gas futures fell to a fresh 20-month low amid a growing belief that gas stockpiles, currently about 5% above the five-year (2018-2022) average, were more than enough for the rest of the winter.

"The exceptionally warmer-than-average January, along with a slower-than-expected Freeport LNG restart have helped lift our storage expectations under our price forecast to near-4 Tcf (trillion cubic feet)," Goldman analysts wrote in a research note.

The weather, expected to turn warmer-than-normal in late February, should keep heating demand mostly low, allowing utilities to continue pulling less gas from storage and pushing prices further down.

U.S. production of natural gas could grow year-on-year by 4.1 billion cubic feet per day (Bcf/d) in 2023, primarily due to the higher output from Oklahoma, the note said.

However, current price levels at Henry Hub, being sold off well below forecasts, could cause storage levels to drop well below average, under 3.4 Tcf, by end-October, it added.

Current prices would "incentivize enough C2G (coal-to-gas) substitution as well as a curtailment in our expected production growth into year-end," the bank said.