For the third week in a row, natural gas prices posted a notable gain, closing nearly 12 cents higher on the week, with the prompt month October contract settling over the 2.60 level for the first time since late May.

(Click on image to enlarge)

As we have pointed out previously, this is the time of year that prices often do move in favor of the bulls.

(Click on image to enlarge)

This year's rally, percentage wise, has been quite large, however, partially due to such a low starting point, having been at multi-year lows for a prolonged period, but also due to a very large number of shorts in the market.

(Click on image to enlarge)

As prices move up, some of the short are forced to cover, sending prices even higher. The catalyst that sparked the move was a large run up in daily cash prices, although those appear to have peaked earlier this week.

(Click on image to enlarge)

We did see a pullback of more than 10 cents earlier in the week before prices shot back higher after yesterday's EIA report showed a smaller-than-expected build for last week, and then again today toward the close, the latter of which may have simply been additional short-covering as traders de-risk into the weekend.

Looking ahead, trends in cash prices may still hold the key to the movement of futures. We still have some heat in the forecast, mid-September style, enough for well above normal natural gas demand in the near term.

(Click on image to enlarge)

You will notice, however, by week two, that demand drops off considerably, and even the forecast for the upcoming week, while still impressive from a demand standpoint, is not as hot as models had forecast a couple of days ago, as seen by the large 2-day GWDD change in last night's modeling.

(Click on image to enlarge)

Time will tell is this is enough to take the "heat" off cash prices, and in turn, provide at least a temporary halt in the strong rally of the last three weeks.