Last week felt a little more promising for natural gas bulls, as prices rose to around $2.35 at the end of electronic trading back on Friday, flirting with key resistance levels that seemed at risk to be broken thanks to colder weather from the end of this month into the start of November. It was not to be, however, as prices were crushed in today's session. The prompt month November contract settled down more than 8 cents on the day, reversing most of last week's entire rally with a closing price of $2.238.

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Why such a sharp decline? There are a couple of reasons. One is that the amount of cold forecast by the weather models weakened over the weekend. Notice how cold the GEFS was, for example, when we woke up Friday morning in the 11-15 day time frame:

Checking what it showed this morning valid the same dates, the change is quite obvious to the warmer side in the key eastern half of the U.S.

Yes, there is still plenty of cold on the map, but it is focused in areas where there are fewer people, resulting in lower demand for natural gas consumption.

But weather was not the only driver of today's price action, and arguably not even the most important one, despite being near the time of year when we often look to the weather forecasts as the primary driver of natural gas price volatility. We saw a rather large jump up in natural gas production in the weekend data.

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The data shows that Friday and Saturday's production total was around 95.1 bcf, blowing away the previous high mark of 94.2 bcf in our dataset. At a time when supply-demand balances are already running loose despite low prices, more supply is definitely not something that is friendly to the bulls, what few that still exist, given the market's already extreme short position.

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The length in the market is at its lowest level in years, but until the aforementioned supply/demand balances can tighten, it is difficult to put together a rally unless strong cold hits and is able to have some durability. This week's EIA report seems unlikely to change the landscape much, as it will take quite a miss vs our expectation in order to avoid again reflecting loose S/D balances.

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For now, it is up to weather to deliver enough of a punch to turn this market around, and we cannot rule that out. Even with the warmer change, the medium-range guidance still projects a pattern that often brings cold into the U.S, with upper-level ridging around Greenland (negative NAO), and another upper-level ridge along the west coast of North America, poking up toward Alaska (negative EPO).