Natural gas futures traders put the brakes on last week's late rally as the December contract on Monday recorded a low of $3.825 before closing out the regular session at $3.832, down 20.6 cents from Friday's finish.

Noting that the natural gas market was "back on the defensive," Citi Futures perspective analyst Tim Evans noted that market bulls were not aided by the weakening of Hurricane Tomas into a tropical storm, nor were they helped out by the most recent path projections that show the storm is expected to turn north, thus sparing the Gulf of Mexico.

The near-term temperature forecast wasn't doing the gas bulls any favors either, he said. "The temperature outlook [Monday] morning also includes no jolt of early heating season cold to support the higher price levels, with the 11-to 15-day forecast featuring normal readings across the continental U.S. instead," he said. "The market may still find enough seasonal demand to keep it off the old lows, but the downside looks newly vulnerable..."

Analysts are circumspect as to whether last week's futures gains represent nervous holders of short positions or whether a longer-term trend might be ready to unfold.

"Natural gas settled nicely higher on the week. It has been a long time since we have been able to say that," said Mike DeVooght, president of DEVO Capital, a Colorado-based trading and risk management firm. "The fundamentals continue to be negative for the gas market. But there is a lot of bearish news built into current price levels. On a trading basis, it has been our feeling that we were close to some type of short-covering rally. Time will tell if we saw the majority of the rally last week or there is more to come," he said in a weekend note.

It would be hard to identify many nervous shorts from the weekly Commitments of Traders Report released Friday by the Commodity Futures Trading Commission. On balance traders narrowly decreased long futures and options holdings and increased short holdings.

At IntercontinentalExchange for the five trading days ended Oct. 26, long futures and options (2,500 MMBtu) held by managed money fell by 11,329 to 300,197 contracts, and short contracts rose by 60,860 to 172,785. At the New York Mercantile Exchange (Nymex) long futures and options (10,000 MMBtu) fell by 665 to 126,419, and short positions decreased by 14,025 to 213,181.

Interestingly, changes in short holdings at both exchanges nearly offset each other. When adjusted for contract size the increase in short positions at IntercontinentalExchange (15,215) was almost identically offset by a decrease in shorts at Nymex (minus 14,024). Overall adjusted short and long positions at both exchanges showed a modest decrease in long holdings (minus 3,497) and a small increase in short positions (1,191). For the five trading days ended Oct. 26, December futures fell 12.9 cents to $3.766.

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