This has been quite the week in the world of natural gas, as prices posted a huge rally Monday, taking the prompt month June contract all the way to the $3.15 level, only to give back the entire rally, with the market now sitting essentially where it was when we left off last week.

So, what happened? As we discussed at the end of last week, the $3.00 level had been acting as strong resistance. We saw some demand gains in the weather forecast over the weekend, pushing projected Gas-Weighted Degree Days (GWDDs) above normal this weekend into next week, thanks to more heat in the Midwest and East. That general trend still shows up in today's outlooks.

As seen on the chart, however, demand is not "extreme", by any means, and tails off somewhat again as we close the month and begin June, based on latest indications. With little notable change on the fundamentals side, rallying all the way to $3.15 in prompt month made little sense, and was likely the product of 1) stops being hit, and 2) momentum algos buying the "break" of the $3.00 resistance level.

To be sure, the pullback has been faster than even we expected, and we are now right back in the middle of our $2.90 to $3.00 prompt month trading range, once again. So, what's next? Storage levels currently sit under the 5-year average, though not by a ton, and this year's higher prices could reduce gas burns compared to the last couple of years, on a weather-adjusted basis.

The weather-adjusted supply / demand balance has been running tight, however, and our if estimate for tomorrow's EIA number is correct, we will remain tighter than the average of the last several years.

The higher price point may induce more production to come online over the next few months, however.

Then there is the weather. Summers have tended to run hot for several years now, and it would not be a surprise to see that trend continue this year.

The forecasts above all show broad coverage of above normal temperatures in the June to August period, to varying degrees, though it is early in that game, yet.