Natural gas futures reversed sharply lower early Thursday as reports of a tentative labor agreement removed the looming threat of major rail system disruptions. After jumping 83.0 cents higher in the previous session, the October Nymex contract was off 55.5 cents to $8.559/MMBtu at around 8:50 a.m. ET.

The steep sell-off came amid reports early Thursday that an agreement had been reached to avert a railroad workers strike.

Threats of a strike, having the potential to disrupt deliveries of coal and thus increase natural gas demand, likely helped drive Wednesday’s sharp rally, EBW Analytics Group senior analyst Eli Rubin said.

Those gains were “reinforced” by a combination of “supportive technicals,” upcoming late-season heat and strong LNG feed gas demand, the...