January natural gas futures inched higher Tuesday as traders saw a market that looks to have put in a bottom but was unable to shrug off a faltering oil market. January rose 1.3 cents to $5.579, and February gained 2 cents to $5.632. January crude oil fell $1.64 to $42.07/bbl.

“The market can’t really pick its head up,” said a New York floor trader. He added that there was a cold snap expected later in the week, but there is really no sustained cold. “I think we have seen the bottom here. We bounced off $5.45 to $5.50 a couple of times, and I think the market can trade up to $6 by the end of the week. The last couple of days has seen trading in tight ranges, and the market did trade down from $6.35 to $6.40 down to $5.45 over the last four to five days, and I’m looking for a nice rally in the next couple of days.

“The oil markets got hit pretty hard today, and the crude [inventory] numbers come out tomorrow [Wednesday]. If crude slips below $40, the market will have a hard time keeping its head up, and some traders are talking $5.25, but I don’t think we will get there.”

A Bloomberg poll showed an estimate of a median gain in crude oil supplies of 1.5 million bbl from 13 analysts surveyed. The Energy Information Administration inventory report is scheduled to be released at 10:35 a.m. EST.

Traders see the natural gas market as being less influenced by economic bailouts and a reverberating stock market. Phil Flynn of Alaron in Chicago says the gas market “is focused on some of the current cold, hard economic realities. A market that has already seen industrial use of its product fall by 14% or 15% and now, based on recent news, should fall more.

“[Monday] the gas [contract] was pressured not just by some warmer weather forecasts but by the fact that the impact of industrial demand destruction on gas has just begun. Take, for example, news out of Dow Chemical and 3M. Dow Chemical, ‘in light of current economic realities,’ announced that it will close 20 facilities permanently and 180 plants temporarily. They also announced that they will cut 5,000 jobs or about 11% of its workforce and cut its production by 30%. Last week, competitor DuPont announced cutbacks as well.”

Flynn mused that “with all the talk about Band-Aid and Scotch tape to hold the economy together you might think 3M would be doing a little better.” 3M makes Scotch Tape.

“The truth is that the natural gas move yesterday [January fell 17.6 cents Monday] better reflects the economic reality than the wildly optimistic move in petroleum,” said Flynn. He added that in the near term, energy demand is likely to slump, and “the worry is that if demand continues to be weak, then we could see producers start to cap some wells. That is when gas will be getting ready to turn around.”

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