"We've been pivoting for the last two weeks between a dime of $2.50," per million BTUs, McGillian said. But if the price starts to decline, some of those new longs might be the first to abandon the trade, driving prices down fast.
"I don't think a $1 handle would be sustained, but I think there's a good chance we could see it at some point," he said.
Natural gas prices, which fell to a decade low in January, have had a bit of a reprieve as some companies, like Chesapeake, announced they would cut back on drilling activity. "If you get more production shut ins, that would probably close a door on it," and natural gas could head higher, McGillian said.
Kilduff said there is a record amount of natural gas in storage, and the estimates for the winter season’s end, March 31, range from about 2.2 to 2.4 trillion cubic feet, well above the average 1.5 trillion cubic feet. The highest previous gas in storage level was 2.143 trillion cubic feet in 1983, he said.
Kilduff says he expects to see a weekly withdrawal of 112 bcf when the Energy Information Agency releases data on Thursday. Last year's withdraw at this time was 230 bcf and the five year average is 178 bcf.
"In terms of demand, the winter was a bust. In New York City, we're 20 percent behind in terms of heating degree days," Kilduff said.
"I'm looking for it to bottom out at about $1.80 to $1.85 (per million BTUs). That would be most likely in the April time frame," Kilduff said. "That will be the start of the injection season and that will be the dynamic in which the inventory system will get rebalanced and whatever gas has to exit storage will be hitting the open market then."
The injection season runs from April 1 to November 1, when builds are made to storage. The withdrawal season is the balance of the year, when supplies are drawn down for winter heating use.
Dennis Gartman of the Gartman Letter said he's not interesting in playing the short in natural gas even though he said the price could still go lower.
"Is natural gas cheap? Golly day, it's unbelievably so, and the only thing these natural gas people are hoping for now is a really hot summer...which would require excess firing for electricity to meet air conditioning demand, but that is not going to happen anytime between now and June," said Gartman.
He agreed the price could fall below $2 per million BTUs temporarily. "It will do that without me aboard," he said. Natural gas hit a high of $15.3780 per million BTUs on Dec. 13, 2005.
The U.S. natural gas supply has gotten a big boost from shale gas production, which has been criticized for its potential environmental impacts, including water contamination.
"It's amazing how we have learned to do with fracking, and how cheap we've been able to drill," said Gartman. "...the benefits are enormous economically, and think about it, I like to tell people that right now North America is energy independent, even if the United States might not be."
Hydraulic fracturing, or fracking, requires millions of gallons of water, sand and chemicals to be pumped into the ground, to break apart rock structures, to free natural gas that was otherwise unobtainable.
Shale gas production provides an estimated 35 percent of the U.S. natural gas supply, from 2 percent in 2000, according to IHS CERA.