Traders reversed course in a big way Tuesday as August natural gas futures — which had fallen by $1.65 from June 15 through July 9 — sprung higher Tuesday in a fierce round of short-covering. The prompt month hit a high of $6.710 before settling at $6.699, up 28.9 cents from Monday’s close.

The radical turnaround Tuesday from the recent trend had traders wondering whether sizzling heat in a number of regions of the country could turn control of the market back to the bulls.

“I think we saw a fair amount of short-covering action from the funds on Tuesday,” said Tom Saal with Commercial Brokerage Corp. in Miami. “They have been the biggest sellers over the last couple of weeks, so I was not surprised that they were doing some buying here.”

Whether Tuesday’s nearly 30-cent push higher marked the end of the violent bearish move of the last couple of weeks remains to be seen. Saal said he would like to see a little bit more of a rebound before he is ready to make that call. “We really need to see if some of these stronger fundamentals that have recently appeared in terms of significant heat in the East stick around for any real period of time,” he said. “If this heat sticks around, I think we can move higher…and the buyers will be these very same people that sold all of these contracts over the last few weeks. In order to confirm an end to the bear move, I would like to get back above the $6.820 level, and then I think the psychological impact of getting above $7 would seal the deal. If we do head higher, the people who sold us down here but didn’t get out yet will probably be looking for a way to get out of their contracts.”

Looking at the current market dynamics, Saal said he would still recommend his options strategy of the last number of months. “I still say hedgers should continue to use options because the volatility levels are still on the low end of the range, which translates into cheap option premiums.”

Weather bulls this week may enjoy warmer temperatures and greater consumption of natural gas to fire power generation. The National Weather Service (NWS) forecasted higher than normal accumulations of cooling degree days (CDD) in major energy markets. For the week ending July 14, the NWS said New York, New Jersey and Pennsylvania will have to endure 82 CDDs, or 27 more than normal. The industrialized Midwest states of Ohio, Michigan, Illinois, Indiana and Wisconsin are expected to bake under 66 CDDs, or 11 more than normal.

These figures stand in sharp contrast to last week’s cooler weather and lower CDD tally. For the week ended July 7, New York and the Mid-Atlantic enjoyed just 35 CDDs, or 13 fewer than normal, and the Midwest states experienced 43 CDD, or seven fewer than normal.

Those cooler conditions combined with last week’s U.S. Independence Day holiday, which cut industrial gas demand, will likely mean a hefty gain in natural gas inventories. Economists at Wachovia are looking for a gain of 101 Bcf in Thursday’s release of government figures.

Stronger weather conditions or not, some traders had been looking for prices to work lower Tuesday. “It looked like there was some short-covering early because the market opened 10 cents higher Monday,” said a New York floor trader Tuesday morning. “There are some buyers who see value in $6.30 to $6.40 August natural gas, but everything looks like the market will trade down to $5.90 to $6.00.”

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