U.S. natural gas futures slipped midday Tuesday after hitting their highest level in over a week, as traders took profits following a sharp weather-driven rally. November contracts briefly surged to $3.504 early in the session—just shy of key resistance between $3.550 and $3.585—before encountering selling pressure that halted further gains.
This pullback comes after a strong two-day rally that began with last Friday’s reversal bottom and extended through Monday’s gap-higher open, fueled by a shift in U.S. weather models toward colder late-October forecasts. The market has now cleared near-term technical barriers, with price action largely driven by revised heating demand expectations.
Traders responded aggressively to colder weekend model updates from both the GFS and EC ensembles, which added over 10 heating degree days (HDDs) to late October projections.
Atmospheric G2 and NatGasWeather both highlighted a trend toward below-normal temperatures in the eastern and central U.S. from October 25 through early November. This triggered a wave of short-covering that pushed prices past technical resistance early Monday.
However, near-term weather through October 22 still points to only light-to-moderate demand, with the South staying seasonably warm and the North seeing scattered cooler systems. The market remains sensitive to any midday weather model reversals that could temper the bullish tone.
Despite the bullish weather shift, rising U.S. dry gas production remains a limiting factor. Lower-48 output hit 107.2 Bcf/day on Monday—up 3.8% year-over-year—while rig counts continue to rise. The Baker Hughes gas rig count climbed to 121 last week, just shy of the two-year high. The EIA has also raised its 2025 output forecast to 107.14 Bcf/day, signaling longer-term supply strength.
LNG exports remain steady at 16.3 Bcf/day, slightly down on the week, and U.S. pipeline exports to Mexico reached a record 7.5 Bcf/day in May. Meanwhile, electricity demand is rising, with the Edison Electric Institute reporting a 5.1% year-over-year increase for the week ending October 11.
Storage levels are providing mixed signals. Last Thursday’s EIA injection of +80 Bcf came in slightly below both consensus (+81 Bcf) and the five-year average (+83 Bcf), giving bulls modest support.
Still, overall inventories are 4.3% above their five-year seasonal average, and European gas storage is at 83%—well below last year’s 92% average for this time of year—suggesting regional tightness but not outright scarcity.
The near-term outlook leans bullish as long as the 50-day moving average at $3.239 holds and is contingent on weather models maintaining colder trends into early November. The strong technical move above recent resistance and aggressive short-covering suggest momentum may persist if production concerns remain in check and weather-driven demand solidifies.
However, high supply levels and elevated rig counts could cap gains near $3.550 to $3.585 unless fundamentals further tighten. If buyers can destroy this resistance, then $3.823 hits the radar.
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James Hyerczyk is a U.S. based seasoned technical analyst and educator with over 40 years of experience in market analysis and trading, specializing in chart patterns and price movement. He is the author of two books on technical analysis and has a background in both futures and stock markets.