Record Fund Shorts Get Squeezed as December Gas Rips to $3.217, With Cold Weather Putting a $3.80 Target

December Nymex natural gas (NGZ26) staged its biggest rally of the autumn this week. On Monday the contract jumped 22 cents, or 7.34%, to settle at $3.217 per MMBtu. It was the highest close in four weeks, and the intraday high reached $3.24. On Tuesday the market added to those gains. Early trade ran between $3.163 and $3.205, the contract held near $3.19 through the morning, and buyers pushed it higher into the afternoon as short covering carried on through the session. December has now gained more than 36 cents since its $2.855 settle on November 2, a rally of 12.7% in six sessions.

The day-by-day settles show how quickly the market turned. December lost 4.2 cents on November 2 to settle at $2.855. It gained 3.9 cents on November 3 to $2.894 and 6.4 cents on November 4 to $2.958. It slipped 1.2 cents on November 5 to $2.946 after the weekly storage report, then rose 5.1 cents on November 6 to $2.997. Monday’s 22-cent jump took it through $3.00 and the $3.10–$3.15 area in a single session. That is the kind of move that only happens when a crowded short position gets forced out.

It also reverses a steep autumn slide. The November contract fell 54 cents, or 16%, from July 1 to its October 28 expiration. Late in October the nearby contract hit a 6.5-month low. On October 27, its second-to-last trading day, November futures settled at $2.662 per MMBtu after closing the previous session at the lowest level since April 28. In the cash market, next-day gas at Henry Hub fell to $2.52, its lowest since November 2024. The EIA’s daily spot series shows Henry Hub at $2.42 on October 30, then $2.54 on November 2 and $2.63 on November 3.

The rally has not erased the yearly damage. The continuous front-month contract is still down 11.1% for the year and 28.4% from a year ago, though it has gained close to 10% since the start of November. The 52-week range for the continuous contract runs from $2.483 to $7.827, so the current price sits much nearer the bottom than the top.

What changed in a week is simple. Weather forecasts turned colder for the first time this season. Production fell from record levels. LNG feedgas set new records. And the market was holding the biggest net short position in its recorded history. Put those together and the squeeze was not a surprise. The question for the rest of November is whether fundamentals can take over from short covering before the December contract expires on November 25.

The Short Squeeze That Did the Heavy Lifting

Positioning explains most of this week’s move. In the week ended November 3, funds added 11,426 contracts to their short exposure in New York natural gas futures. That took their net short position to a record 636,576 contracts in CFTC Commitments of Traders data that goes back to 2013. Measured another way, speculative net shorts sat at the 0.2 percentile of their historical range. Gross shorts totaled roughly 540,000 contracts, the highest in years, and longs made up only 34.2% of speculative positioning.

Funds built that position for good reasons. The Super El Niño was expected to bring a warm winter across the Northern Hemisphere. Storage had moved back into surplus. Production had hit a record in August. The EIA’s own forecasts pointed lower for 2027. All of that justified a bearish bet. The problem with a crowded trade is that it needs only a small change in conditions to unwind, and this week weather forecasts delivered that change.

When a market is that short, the first leg of any rally is almost always short covering. Traders who sold December at $2.85 to $2.95 faced paper losses as the contract moved through $3.00. Many had stops clustered just above the round number. Once those triggered, forced buying pushed the contract through $3.10 and $3.15, and each new high triggered the next wave of stops. The 7.34% move on Monday was the result.

The CFTC data that covered the record short was compiled on November 3, when December traded around $2.90. Since then the contract has gained more than 10%. Some of that short position has already been covered, but the starting point was so extreme that a large amount almost certainly remains. Friday’s COT report, which covers positions through November 10, will show how much covering took place. A large drop in net shorts would mean the squeeze has run much of its course. A small drop would mean there is still plenty of fuel.

The risk on the other side is just as clear. Short-covering rallies end when the buying from covering runs out and no new longs replace it. If the cold forecast fades or Thursday’s storage report comes in heavy, funds that just covered could re-short at higher prices, and December could fall back toward $3.00 as fast as it rose. Positioning makes this market explosive in both directions.

Weather Turns Cold for the First Time This Season

The spark for the squeeze was a change in forecasts. On Friday, the Commodity Weather Group said forecasts had shifted cooler across the central and eastern US through November 20. On Monday the group repeated that view. More than 160 million Americans are expected to see below-normal temperatures through November 14, mainly in the Great Lakes, the Ohio Valley and the Northeast. Those are the heaviest gas-heating regions in the country.

The 6–10 and 8–14 day outlooks from the NOAA Climate Prediction Center now show cold zones for the first time in weeks. The European weather model added 11 to 12 heating degree days in its ensemble run over the weekend. Lighter wind this week is adding to power-sector gas burn, because lower wind output has to be replaced by gas-fired generation.

The contrast with recent weeks is stark. From October 30 to November 5, heating degree days ran 21% below normal, according to NOAA. Above-average temperatures had been forecast across most of the US through November 16 as recently as November 2. A warm autumn let utilities keep injecting gas into storage well into November, which is why the storage surplus started growing again. The cold shift reverses that, at least for the next 10 days.

There is a bigger weather risk in the background. Forecasters are watching for a rare November sudden stratospheric warming. In that event, the polar vortex weakens and can push cold Arctic air south into North America. The effects can last up to two months, usually through a negative phase of the Arctic Oscillation. A November SSW is unusual, and nothing is confirmed yet. But if one develops, it would turn a short cold snap into a sustained cold pattern through December and January.

The limits of the weather case are just as important. NOAA’s monthly outlook for November still calls for above-normal temperatures across most of the country. The Super El Niño pattern is expected to stretch into late November. Forecasters are split on how strong and how long this cold snap will be, and on Tuesday morning doubts about its duration capped the early gains. The market is pricing cold that has not arrived yet. If the second half of November moderates, the weather premium built in this week will come out quickly.

Storage at 3,801 Bcf and a Surplus That Grew Again

The storage picture favors the bears. The EIA weekly storage report showed working gas at 3,801 Bcf as of October 30, after a 77 Bcf injection. The build was 4 Bcf below expectations but well above the five-year average of 61 Bcf for that week. Inventories sit 54 Bcf, or 1.4%, above the five-year average, and 109 Bcf below the level of a year ago.

The trend matters more than the level. In August the surplus over the five-year average stood at 198 Bcf. It then shrank for ten straight weeks as hot summer weather lifted power burn and LNG exports climbed. Late October reversed that. In the week ended October 23, the build was 80 Bcf against a 72 Bcf consensus, which lifted stocks to 3,724 Bcf, 38 Bcf above the five-year average and 147 Bcf below a year earlier. The October 30 build added another 16 Bcf to the surplus.

Thursday’s report covers the week ended November 6. The early estimate calls for a 67 Bcf injection, 10 Bcf less than the prior week but still above normal for early November. That would lift the surplus to roughly 81 Bcf, or 2.1% above the five-year average, up from 1.4%. In other words, the market goes into the heating season with more gas than usual, and a warm first week of November added to the cushion.

That cushion explains why funds were so heavily short. Full storage at the start of winter means the market can absorb a cold snap without running short of supply. The 3,801 Bcf figure is already high, and with Thursday’s estimated build stocks would approach 3,870 Bcf. Unless December and January turn sharply colder than normal, end-of-winter inventories will sit comfortably above average, and that keeps a lid on deferred prices.

The report is also the next big test for the rally. A build of 67 Bcf or less would support the case that cold weather and record exports are tightening the balance. A build well above 67 Bcf would confirm the surplus is growing, and that combination of a heavy report with a fading cold forecast is how short-covering rallies usually end. With December this extended after a 12.7% run in six sessions, Thursday’s number could move the contract 10 to 20 cents in either direction.

Production Falls From Record Highs

Supply is where the bullish case has the most support. Average gas output in the Lower 48 states has fallen to 112.1 Bcf/d so far in November, down from 113.4 Bcf/d in October and well below the monthly record of 115.0 Bcf/d set in August. On a daily basis the decline has been sharper. On November 3, Lower 48 dry gas production fell to 109.2 Bcf/d, a nine-month low. Weekly figures show output down 3.3 Bcf/d to 108.8 Bcf/d.

Low prices caused the decline. With Henry Hub cash trading at $2.42 to $2.63 in late October and early November, some producers chose to curtail output rather than sell at a loss. Several northeastern producers have announced curtailments. In the Appalachian basin, where pipeline constraints already depress local prices, cash values were too weak to justify full production. When prices fall below the cost of production, the supply response is the market’s own correction mechanism.

That response is also temporary. Curtailed wells can come back online quickly once prices recover. With December above $3.20, the incentive to bring curtailed volumes back is rising. Production was already recovering slowly from the autumn pullback earlier this week. A full return to the 113–115 Bcf/d range would add 3 to 5 Bcf/d of supply, more than enough to offset a modest cold snap.

The EIA’s forecasts reflect that. Production growth is expected to keep outpacing demand through 2027. In its Short-Term Energy Outlook, the agency has repeatedly raised its 2026 dry-gas production forecast this year. In its November release, published Tuesday, the EIA cut its winter Henry Hub price forecast, citing mild weather, rising storage expectations and production growth that continues to run ahead of demand. That is the official view of supply, and it remains bearish.

For traders, production is the swing variable. If output stays below 111 Bcf/d while cold weather arrives, a breakout above $3.40–$3.50 becomes realistic. If output climbs back above 113 Bcf/d by late November, the rally is likely to stall in the $3.30–$3.35 zone. Daily pipeline-flow estimates will show which way it goes well before the monthly data.

LNG Feedgas at a Record 19.3 Bcf/d

Export demand is the strongest bullish factor in the market. Average gas flows to the nine major US LNG export plants have risen to a record 19.3 Bcf/d so far in November, above October’s monthly record of 18.4 Bcf/d. On a daily basis, feedgas has pushed toward 21 Bcf/d, a level that would have seemed impossible two years ago. Every additional Bcf/d of LNG demand takes gas out of the domestic market and out of storage.

New capacity drives the growth. Golden Pass in Texas, a 2.4 Bcf/d project, has been ramping up, and other new trains have added to total export capacity. The EIA’s October outlook projected US LNG gross exports at 18 Bcf/d for 2026 and 19 Bcf/d for 2027. November flows are already above the 2027 forecast. That pace of export growth is the main reason the storage surplus shrank from 198 Bcf in August to 38 Bcf in late October.

Global demand supports those flows. The near-closure of the Strait of Hormuz during the Iran conflict has curbed Middle Eastern gas supplies, and buyers in Europe and Asia have turned to US cargoes to fill the gap. Europe still faces a supply deficit heading into winter. That makes US LNG the marginal supply source for much of the world, and it ties Henry Hub more closely to global prices than at any point in the past.

The global picture has softened in recent days, though. European TTF prices fell 17.7% last week to €85.6/MWh as mild weather and strong Norwegian supply eased pressure. Rising expectations of a US-Iran deal have also lowered oil prices, which weighs on oil-indexed LNG contracts. A narrower spread between Henry Hub and TTF reduces the profit on each US cargo. At €85.6/MWh, TTF still sits far above Henry Hub on an energy-equivalent basis, so the export arbitrage remains wide open, but the cushion is smaller than it was.

LNG is the floor for the domestic market. With plants running near capacity, export demand is steady and largely insensitive to price in the short term. That steady 19 to 21 Bcf/d of demand is the main reason December did not fall further when the November contract expired. If any plant goes offline for maintenance or an outage, the domestic market loses that demand overnight, and prices would drop sharply. Feedgas data is the first number traders should check each morning.

The EIA Cuts Its Winter Price Forecast

The EIA released its November Short-Term Energy Outlook on Tuesday, and it went against the rally. The agency cut its winter natural gas price forecast, citing unusually mild weather, rising storage expectations and production growth that continues to outpace demand. It did so even as LNG exports surged to records. The cut tells the market that, in the EIA’s view, this week’s cold forecast is not enough to change the supply-demand balance for the season.

The October outlook had already set a modest baseline. It forecast the Henry Hub spot price at $3.48 per MMBtu for 2026 and $3.16 for 2027, a 9% decline. It assumed national winter temperatures would be about the same as last winter and the previous 10-winter average. It forecast that households heating with natural gas or propane, about half of US households, would spend less on energy this winter than last. A lower winter price forecast in November moves the official view further to the bearish side.

The EIA’s view matters because it sets the framework many utilities and commercial buyers use to plan their purchases. A lower official forecast reduces the urgency for those buyers to lock in winter supply at current prices. It also signals to producers that the curtailments of late October may not be enough to tighten the market, which could encourage them to restore output faster.

At the same time, the EIA’s forecasts have a mixed record on short-term weather swings. A year ago, the agency raised its winter forecast by more than 40 cents in December after an early cold snap pushed up heating demand. Forecasts built on normal weather can miss badly when the weather is not normal. If a November SSW develops and December turns cold, the EIA would likely raise its forecast again in its December outlook, published on December 8.

For the futures market, the EIA’s cut adds weight to the view that this week’s rally is a positioning event rather than a fundamental shift. That does not mean the rally has to end now. Short-covering moves can run further than fundamentals justify. But it does mean the burden is on the weather to deliver. Without sustained cold, the official forecast and the storage data both point back toward $3.00.

The Futures Curve and the Winter Premium

The shape of the futures curve shows what the market expects. On October 27, December settled at $3.022, January at $3.514 and December 2027 at $4.019. The balance-of-2026 strip stood at $2.812 and the 12-month strip at $2.858. The spread between December and January was about 49 cents, which shows how much of a winter premium sits in the January contract.

Deferred prices above nearby prices form a contango curve. That structure says the market sees ample gas today but expects tighter conditions in the depth of winter and over the longer term, as LNG exports keep growing. It also creates a storage trade. Traders can buy cheap spot gas, inject it into storage, and sell a futures contract at a higher price for later delivery. That trade has kept injections running well into November.

The spot-futures gap tells the same story. Henry Hub cash prices have traded well below December futures for weeks. On November 3, spot was $2.63 while December settled at $2.894, a discount of 26 cents. Spot at $2.42 on October 30 sat 48 cents below December. A persistent discount of cash to futures shows physical gas is abundant now. If the cold arrives and cash rises above futures, that would be the clearest sign the balance has tightened.

The January contract matters more as December nears expiry. December expires November 25, and January takes over as the front month the next day. With January carrying a winter premium of roughly 45 to 50 cents over December, the continuous front-month price will jump on the roll even if nothing changes in the market. Traders using continuous charts need to account for that, because a roll from $3.20 December to roughly $3.65 January would look like a rally on the chart without being one.

The curve also frames the upside target. The upside target for this forecast is $3.80. That is near January’s level from late October, plus a modest premium if the cold persists. If December rallies toward $3.80, it would trade near the winter strip, meaning the market had fully priced a cold start to the season. That is the logical limit for a short-squeeze rally before fundamentals have to confirm it.

The Macro Layer: CPI, the Fed and Oil

Natural gas trades mainly on weather and storage, but the macro backdrop still shapes the flows. The October CPI came in hot on Tuesday. Headline rose 0.4% against a 0.3% forecast and core rose 0.3% against 0.2%. Energy prices rose 0.7% for the month and gasoline 1.0%. Fed Governor Christopher Waller said a 50bp hike should be considered if core runs around 0.3%, and futures moved to 85% odds of a 25bp hike and 15% odds of a 50bp hike at the December 9 FOMC.

The dollar index rose 0.3% to 102.00, and the 2-year Treasury yield jumped 19 basis points to 4.736%. A stronger dollar is a headwind for most commodities, because it makes dollar-priced contracts more expensive for foreign buyers. For Henry Hub the effect is indirect but real. A stronger dollar widens the cost gap for overseas LNG buyers, which narrows the netback on US cargoes at the margin.

Oil adds another link. Brent closed at $89.62 and WTI at $84.38 after easing on rising expectations of a US-Iran deal. Lower oil prices push down oil-indexed LNG contract prices, especially in Asia. They also affect associated-gas production. Much of US gas output comes from oil wells in the Permian, and lower oil prices slow drilling there, which reduces associated gas supply over time. That supply effect is slow, but a sustained decline in oil would help tighten the gas balance in 2027.

Broader markets set risk appetite. The S&P 500 fell 0.71% to 7,496.17 and the Nasdaq lost 0.87% to 25,034.07 on Tuesday, with the VIX at 21.06. When risk appetite falls, commodity funds tend to reduce exposure across the board. In natural gas, with a record short position, that could actually support prices, because reducing exposure means covering shorts.

The macro picture is mixed for gas. The stronger dollar and higher yields are mild headwinds. Lower oil prices cut both ways. The main drivers are still weather, production, LNG and storage. Traders should watch Friday’s PPI and the Fed minutes on November 18 for any shift in the dollar, but they will not decide the direction of December gas.

Daily Chart: $3.35 Is the Wall

The technical picture improved sharply this week. December climbed above its 200-day moving average for the first time in weeks on Monday’s rally. It now trades 7.3% above its 50-session moving average. The 75-day moving average sits at $2.94, which was the base for the rally, and the 1-year moving average sits near $3.20. The contract is now trading right at that 1-year average, which marks the line between the long-term bearish trend and a potential new uptrend.

Momentum has turned up but is not stretched. The 14-day RSI sits at 61, firmly bullish but below the 70 level that usually signals overbought conditions. The price is 1.7 standard deviations above its 75-day average. On a valuation basis against the 1-year average, December reads 0.1, which is close to neutral. That combination says the rally has momentum but has not yet reached an extreme, which leaves room for more upside if the fundamentals cooperate.

The key resistance zone sits at $3.35. That level capped rallies in October and lines up with the area where the 30-day range topped out. A daily close above $3.35 would clear the way to the $3.40–$3.50 breakout zone. A move through $3.50 could trigger another wave of short covering toward $3.80–$4.00, where the January contract and the winter strip sit. The $3.80 upside target lies in that zone.

Support is well defined. The first level is the $3.10–$3.15 area that Monday’s move broke through. Below that, $3.00 is the psychological level and the top of last week’s range. Beneath $3.00, the November 5 settle at $2.946 and the 75-day average at $2.94 form a key support zone. A daily close below $2.94 would mean the squeeze has failed and would open a return toward $2.60–$2.70, near the late-October lows.

The chart reflects the market’s two forces. Short covering and cold forecasts have pushed the contract above its key averages. Fundamentals, led by the storage surplus and the EIA cut, are trying to pull it back. A close above $3.35 says the short covering is winning. A close below $3.00 says the fundamentals are winning. Between those levels the market is in a contest, and Thursday’s storage report will likely decide it.

Producer Equities and Gas ETFs Ride the Squeeze

The rally has spread beyond the futures market. The United States Natural Gas Fund (UNG) rose 7.81% on Monday, in line with the front-month move. Leveraged ETFs moved even more. The ProShares Ultra Bloomberg Natural Gas (BOIL), which targets twice the daily return of gas futures, rallied sharply, while its inverse counterpart, KOLD, fell hard. These products attract heavy retail flows during volatile weeks, and their daily rebalancing can add to intraday moves near the settle.

Gas producers have a more direct stake in the outcome. EQT, the largest US gas producer, and Expand Energy, formed from the merger of Chesapeake and Southwestern, both carry heavy exposure to Appalachian and Haynesville prices. Those regions saw the deepest cash-price weakness in October, and producers there led the curtailments. A sustained move above $3.20 would improve their realized prices for the winter and could encourage them to restore curtailed volumes, which is bearish for gas but bullish for their cash flow.

LNG exporters such as Cheniere are on the other side of the trade. Their profits depend on the spread between Henry Hub and global prices. A higher Henry Hub price narrows that spread, which can weigh on spot cargo margins. But most of Cheniere’s capacity is locked into long-term contracts with fixed fees, so the impact on earnings is limited. Record feedgas volumes support the business regardless of where Henry Hub trades in the short term.

Utilities face the opposite incentive from producers. Higher prices raise their cost of fuel, especially for gas-fired power generation. With electricity demand growing from data centers and industrial expansion, power-sector gas burn has stayed high this year even in mild weather. A cold November would add heating demand on top of that, and utilities that did not lock in winter supply would face higher costs.

For investors, the equity reaction shows where the market thinks the rally can go. If producer stocks keep climbing alongside futures, investors expect higher prices to persist through winter. If producers fade while futures hold, the market sees the rally as a short-term squeeze. So far this week, both futures and producer shares have moved higher, which supports the near-term bullish case.

Scenarios Into the December Expiry

Three paths stand out before December expires on November 25. In the bull path, the cold through November 14 proves stronger than forecast and extends past November 20. Thursday’s storage report comes in at or below 67 Bcf. Production stays below 111 Bcf/d, and LNG feedgas holds near 20 Bcf/d. Under those conditions, December clears $3.35, breaks through $3.40–$3.50, and triggers another round of short covering toward the $3.80 upside target. A confirmed November SSW would add a weather premium for December and January and could push the front month toward $4.00 after the roll.

In the base path, the cold snap arrives but moderates in the second half of November. Thursday’s build lands near 67 Bcf and lifts the surplus to about 81 Bcf. Production recovers slowly toward 112 Bcf/d. December then trades in a $3.00–$3.35 range into expiry, with short covering exhausted and fundamentals balanced. The roll into January would lift the continuous front-month price toward $3.60–$3.70 because of the winter premium, but the underlying market would be neutral.

In the bear path, forecasts for late November turn warm again and the Super El Niño pattern returns. Thursday’s report shows a build well above 67 Bcf, and production recovers above 113 Bcf/d as producers restore curtailed volumes. Funds that just covered re-short at higher prices. December falls back through $3.00 and the $2.94 support zone toward $2.60–$2.70, erasing the squeeze. The EIA’s lower winter forecast would then look accurate.

The odds tilt toward the base path in the near term, with the bull path a realistic risk because of positioning. Funds still hold a large short position, and that gives the market upside fuel even if fundamentals stay neutral. The bear path needs a warm turn in forecasts, which is possible given the El Niño backdrop but not the current model consensus.

Natural Gas Verdict: Mixed, Bullish Above $3.00, Upside Target $3.80

The outlook for natural gas is mixed, with a bullish near-term bias. December futures jumped 22 cents, or 7.34%, to $3.217 on Monday, a four-week high, and added to those gains on Tuesday as short covering continued. The contract has rallied 12.7% in six sessions from $2.855. The squeeze has three supports: funds hold a record 636,576-contract net short, colder weather is forecast for more than 160 million Americans through November 14, and the cooler pattern extends to November 20. Lower 48 production has fallen from a record 115.0 Bcf/d in August to 112.1 Bcf/d this month, with daily lows near 109 Bcf/d, and LNG feedgas is running at a record 19.3 Bcf/d. Against that, storage stands at 3,801 Bcf, 54 Bcf above the five-year average, and the surplus grew again in late October. The EIA cut its winter price forecast on Tuesday. NOAA’s November outlook still calls for above-normal temperatures, and the Super El Niño points to a mild winter. A storage build at or below 67 Bcf on Thursday, production held under 111 Bcf/d and cold that lasts past November 20 would drive December through the $3.35 resistance and the $3.40–$3.50 breakout zone to the $3.80 upside target, with $4.00 the extended target if a November stratospheric warming event develops. A daily close below $3.00 would weaken the bullish case. A close below the $2.94 support zone would mean the squeeze has failed and would open $2.60–$2.70.

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