Natural gas futures continued to probe lower values on Tuesday, but market experts wonder whether the downward move that began last summer might actually be coming to an end. For its part, the April contract put in a low of $3.761 before closing Tuesday’s regular session at $3.812, down 3.8 cents from Monday’s finish.

With prices at lows not seen in more than six years, traders and analysts alike are wondering just how much further prices can fall before a prolonged and solid streak of buying comes into the market. Since last summer’s front-month contract peak on July 2, 2008 of $13.694, futures values have fallen 72%, or $9.882, to arrive at Tuesday’s close.

“It is very hard to be a bull in a market as oversupplied as this current one is. Even as we see rigs being laid down, we are still hearing stories of declining industrial demand,” said a Washington, DC-based broker. “There are support levels below us at $3.700 and then down around $3.400, but I’m not so sure we are going to get much lower than we currently are.”

He noted that the recent signs of life shown by the economy could act as support for natural gas futures. “Under the stimulus package, we are starting to hear stories about the banks being more willing to lend to businesses than they have been. That is a big change from where we were,” the broker said. “There is also money flooding into the economy, as evidenced by the five out of six days higher for the Dow Jones Industrial Average. What that implies is there is the possibility that we have some inflation returning into the economy. If you have an inflated economy, it would seem to me it would influence the price of commodities.”

Even as the negative economic press still arrives daily such as the millions in questionable bonuses just handed out to executives by insurance giant AIG, Wall Street continued to show signs of life on Tuesday. The Dow jumped 2.5%, or 178 points, to close near 7,400.

“Despite the supportive items, many of the traditional indicators such as weather, demand and supply still point to lower values, but it is very hard to say how much lower this thing might move, the broker continued. “The Energy Information Administration recently pointed out that natural gas prices are now under coal prices in some regions of the country, so natural gas could be used as a cheaper alternative fuel. If gas is now the cheaper alternative, perhaps that becomes a factor that ends up supporting prices. I’m not embracing this notion that prices are going below $2, because producers will continue to lay up rigs. Add the potential of a rebounding economy and I’m even less sure the doomsday scenario of sub-$2 prices will be realized here.”

In spite of the current price malaise, other observers are beginning to think that conditions are falling into place that may lead to eventual price improvement. “The rig count has fallen very hard, but the latest supply-demand numbers don’t show the production drop-off, which I think is there,” said a Houston-based broker. The broker is looking for some big production declines and is not willing to push the short side of the market. “People’s perceptions are currently very bearish, and they point to the economy with the industrial demand and power demand numbers falling off hard at the end of last year. With crude oil prices stabilizing, I have a hard time being short natural gas below $4.”

Traders were impressed with the 8:30 a.m. EDT Tuesday release of February housing starts by the Department of Commerce. Analysts had been expecting a seasonally adjusted 450,000 units on an annual basis, but the actual figure came in at a higher rate of 583,000 units. In January 466,000 housing starts were reported, which was indicative of the free-fall in the housing sector. In January 2008 housing starts were at a rate of more than a million units annually.

However, Monday’s release of capacity utilization and industrial production statistics by the Federal Reserve was not suggestive that industrial demand for natural gas would increase anytime soon. February capacity utilization came in at 70.9%, slightly less than expectations of 71% and less than January’s 71.9%.

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