Natural gas selloff as warm weather forecasts come into play

Natural gas is trading near Thursday's opening at $3.41, pulling back from a three-week high. Revised weather forecasts predicting warmer early-November temperatures have been the primary source pressuring prices by diminishing the outlook for heating demand.

The broader market is still dealing with an oversupply. US gas production is holding near record levels, with the active rig count reaching a two-year peak. The upcoming weekly inventory report is likely to reflect a larger build than typical for the season, underscoring the current ample supply. Although LNG export flows to Mexico are strong enough, they are just insufficient to offset rising domestic output.

Headwinds are also taking place in global markets. While European gas inventories are below the five-year average, forecasts for unseasonably warm and windy weather next month are set to temporarily curb the region's import demand.

From a technical standpoint, the market looks due for a pullback after its strong run-up from October's lows. This recent bullish push is confirmed by a rising Chaikin Oscillator, signaling that buyers have been quite active. However, several indicators are now flashing warnings of its overheated state. The Stochastic is in overbought territory, the Chaikin Oscillator's ascent is slowing down, and the candle forming around the opening price shows uncertainty after the rally. Taken together, these factors point to a near-term correction or a period of consolidation.

All in all, the upside for quotes seems limited in the not-so-distant future. The fundamental picture, shaped by the warm weather forecast, reveals a market struggling with high supply and full inventories. Simultaneously, technical indicators confirm its overheated state following the recent surge and signal an increasing risk of a downward move.

Consider the following strategy for your trading:

Sell natural gas at the current price. Take profit: $3.07. Stop loss: $3.60.

The forecast is relevant from October 23 till October 30, 2025.