The natural gas futures market capped off a bullish week in fitting fashion Friday, rallying for the third time in four sessions to test the psychologically and technically significant boundary around $2.500/MMBtu. The October Nymex contract gained 6.1 cents to $2.496 after trading as high as $2.505, while November picked up 6.0 cents to $2.551.

In the spot market, an expected demand drop-off encouraged widespread discounts on three-day deals in California; the NGI Spot Gas National Avg. fell 3.5 cents to $2.120/MMBtu.

Looking at the futures, the October contract rallied more than 20 cents during the holiday-shortened trading week, even as forecasters and analysts expressed plenty of skepticism as to whether the fundamentals merited such gains.

Noting that open interest has been falling as prices have been going up, Powerhouse LLC President Elaine Levin described it as a “classic short-covering rally.”

“I think the market got very, very oversold,” Levin told NGI. “It looked like some of the specs were about as short as they’d been in a long time.”

The question moving forward will be whether new money enters the market to build on the momentum created by the short-covering rally, she said. From a technical standpoint, if the front month can settle above $2.500, a resistance level that, looking at the continuation chart, held firm back in July, then the next target for the bulls would be around $2.700, according to Levin.

“Fundamentally, there’s a lot of gas around, but even bear markets have corrections,” Levin said. “This is the start of one. The question is does it turn into something more substantial.”

Recent developments on the fundamentals side have offered a few “catalysts that could have aided gains,” including new liquefied natural gas (LNG) exports coming online and hotter trends in the forecast, NatGasWeather said Friday.

“We have a hard time believing major players see this rally to $2.50 as being justified, but when prices move strongly against a hefty imbalance of speculators, fundamentals often don’t matter.”

As for the latest guidance, data as of mid-day Friday continued to show hotter trends for the week ahead over the southern and eastern parts of the country, according to NatGasWeather. Guidance, however, “was little changed Sept. 14-20, where the pattern still isn’t hot enough” given national cooling degree day (CDD) totals would “ease to lighter levels.” Even if guidance adds heat to the outlook over the weekend “it still isn’t likely to result in smaller than normal builds.”

The Energy Information Administration (EIA) on Thursday reported an 84 Bcf weekly injection into U.S. natural gas stocks, on the high side of expectations and higher than both the 64 Bcf injection recorded last year and the five-year average build of 66 Bcf. Total Lower 48 working gas in underground storage stood at 2,941 Bcf as of Aug. 30, 383 Bcf (15.0%) above year-ago levels but 82 Bcf (minus 2.7%) below the five-year average, according to EIA.

With the latest injection the market “continues to reflect oversupplied conditions,” according to Tudor, Pickering, Holt & Co. (TPH) analysts. Based on this week’s EIA data, they calculated a 1 Bcf/d oversupply after adjusting for weather.

“After a slow start, degree days for this year’s injection season now sit almost dead in-line with the five-year average, but despite the neutral weather, cumulative injections are 44% ahead of norms and are mirroring the trajectory of 2015,” the TPH team said. “For gas bulls, 2015 is not a comparison you want, as rapid injections that year resulted in sub-$2 pricing the following spring.

“In our view, the rally in gas prices this week is not backed by fundamentals, as most supply/demand inputs are trending bearish. On a week/week perspective, supply is up 0.2 Bcf/d,” LNG feed gas demand is down about 0.5 Bcf/d, and Canadian imports are up 0.5 Bcf/d.

Genscape Inc. analysts viewed the 84 Bcf injection as indicating 0.9 Bcf/d of slack in the market versus the five-year average when taking into account degree days and normal seasonality.

“A large decline in CDDs versus the prior week drove total power demand/generation lower and reduced gas burn by more than 5 Bcf/d week/week,” senior natural gas analyst Rick Margolin said.

After heat and import constraints helped drive elevated pricing in Southern California earlier in the week, points in the region saw hefty discounts Friday as demand was expected to drop-off going into the weekend.

Utility Southern California Gas (aka SoCalGas) was forecasting demand on its system of around 2 million Dth/d over the weekend, down sharply from just under 3 million Dth on Thursday and an estimated 2.8 million Dth on Friday.

SoCal Citygate plunged $1.105 Friday to average $2.970. Elsewhere in the region, SoCal Border Avg. shed 65.5 to $2.530, while El Paso S. Mainline/N. Baja dropped 81.5 cents to $2.570.

Over the weekend, NatGasWeather was calling for “comfortable conditions” to continue across the Midwest and Northeast, including highs of 60s to 80s, resulting in light demand for those areas.

“The southern U.S. will be hot with highs of 90s and 100s as high pressure rules for strong demand,” the forecaster said Friday. “Hurricane Dorian will bring showers to the Mid-Atlantic and Northeast coast the next few days,” while the West was expected to cool over the weekend and into the upcoming week. “Overall, decent national demand due to the hot southern U.S., but not exceptional with the northern U.S. not participating.”