Setting a different tone than the prior front-month contract, May natural gas futures in their first regular session action on Tuesday probed higher price levels, recording a high of $3.990 before closing the day at $3.973, up 5.7 cents from Monday’s finish.

While a majority of market watchers still feel the downtrend of the last two-plus months still has some room to roam, at least one broker said he wouldn’t advise putting on any fresh shorts at this juncture.

“What we’ve seen in Market Profile recently is a series of nontrend days, which usually comes at the end of a trend,” said Tom Saal, a broker with Hencorp Futures in Miami. “In this case it would signify that longer-term sellers — i.e., longer-term speculators — have stopped selling. Any new selling coming into this thing is likely ‘Johnny come latelies.’ Just like we saw Tuesday, I would expect to continue to see rallies off the lows. I would not recommend anybody putting on any new shorts here.”

Under this scenario, Saal said the question that needs to be answered is who are going to be the buyers in this fundamentally bearish atmosphere. “I think it is going to be the people who are holding short positions,” he said. “Everyone knows the only way to take a profit on a short position is to buy it back. The funds right now are at a record short position in the Nymex futures contract. The May 2010 contract is the cheapest on the board, so it is the most attractive one to buy.”

Saal said he also thinks the market is down near some pretty significant support. “I estimated last year that the average cost of gas in the ground by storage operators is $3.650, so that is an important number. I added to that some marginal cost of carry, which would bring that cost to right around $3.850, or basically where we are trading right now.”

However, some of the top analysts say prices aren’t going to turn around before increases in the rig count subside. “Until drilling activity begins to show some response to this first quarter price decline of more than 30%, additional price weakness appears likely,” said Jim Ritterbusch of Ritterbusch and Associates. According to his calculations, the next downside objective is Monday’s “pre-expiration April contract low at the $3.820 level. Extending the time horizon into next week, further price declines to the $3.660 area still appear likely. We still favor maintaining a core short position for now,” he said Tuesday morning.

If forecasts of late-season heating requirements are correct, market bears may be able to look forward to even lower prices. The National Weather Service (NWS) predicts well-below-normal accumulations of heating degree days (HDD) for the last week of the heating season. For the week ending April 3 New England is expected to see 87 HDD, or 86 fewer than normal, and New York, New Jersey and Pennsylvania are forecast to have 83 HDD, or 69 fewer than normal. The Midwest states of Ohio, Indiana, Michigan, Illinois and Wisconsin are expected to have 90 HDD, or 67 fewer than normal.

For those who thought the brutal cold of January and February would place the winter of 2009-2010 in the colder-than-normal category, not so fast; HDD data says otherwise. New England has received 5,252 HDD since NWS started the tally on July 1, which is 6% fewer than normal, and the Mid-Atlantic states also saw 6% fewer than normal with 4,771 HDD. The Midwest accumulated 5,424 HDD, or 3% fewer than normal.

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