Natural gas futures were trading several cents lower early Wednesday, with recent price action leading analysts to wonder if the recent short-covering rally could be coming to an end. The October Nymex futures contract was down 3.4 cents to $2.546/MMBtu shortly after 8:30 a.m.ET.

The intraday reversal for natural gas Tuesday could signal “the end of the short-squeeze” that has seen prices surge since late August, according to analysts with Tudor, Pickering, Holt & Co. (TPH). This potentially sets up “a correction to the downside, as fundamentals have shown little improvement over the recent rally.”

The TPH team said “waning power gen demand” and “softer” liquefied natural gas (LNG) feed gas demand could contribute to “outsized builds” for upcoming Energy Information Administration storage reports. Injections this year continue to mirror the 2015 refill season, an unflattering comparison for bulls, according to the firm.

“Cumulative injections this year are tracking 43% above the five-year average (injections were 37% above average in 2015), despite degree days just 1.8% below norms, as oversupply continues to grip the market,” the TPH analysts said.

As for the latest forecast, after several days of hotter trends, most weather models dropped a small amount of demand from the outlook overnight, according to NatGasWeather.

“No major changes overall as an unseasonably warm late summer pattern continues across the southern and eastern halves of the country the next 10 days, followed by a major pattern change Sept. 20-26, where cooling shifts over the eastern U.S. and warming over the western U.S. in a bearish setup,” the forecaster said.

“...It’s difficult to predict where prices go from here since they could easily be viewed as having moved too far too fast and due for a sell-off. It’s possible there remains an abundance of bears still trapped, and if there were to be a catalyst for a move higher, it could induce another rush for the exits. Today’s trade should be telling which is correct.”

On the supply side, Lower 48 production has seen a “moderate retreat” since the weekend, according to Genscape Inc. Wednesday’s estimate showed production coming in slightly below 90 Bcf/d, down about 0.9 Bcf/d day/day, driven by declines in the Northeast, the Rockies and the Midcontinent.

“During the weekend, production topped 92 Bcf/d,” Genscape senior natural gas analyst Rick Margolin said. “Along with today’s estimate, month-to-date production is averaging about 91.6 Bcf/d. This is about 0.55 Bcf/d greater than our forecast headed into the month led by outperformance from Texas, West Virginia, northeast Pennsylvania and Ohio producing areas.”

Shortly after 8:30 a.m. ET, October crude oil futures were trading 49 cents higher at $57.89/bbl, while October RBOB gasoline was up about 2.2 cents to $1.6132/gal.