January natural gas futures fell sharply as traders had to deal with a highly negative employment report. Labor Department figures showed the most jobs lost in 34 years, yet the Dow Jones Industrial Average closed in positive territory following the release of an upbeat forecast by a major insurer. January natural gas fell 27.5 cents to $5.742 and February lost 28.3 cents to $5.767. February crude oil continued its losing ways, dropping $2.86 to $40.81/bbl.

“I don’t know where the bottom is, but I think it’s coming soon,” said a New York floor trader. He suggested that the market would find a bottom at $5.50 and it wouldn’t require any support from crude oil. “I think natural gas holds its own. There is some cold weather over the next month, some sustained cold, and I think the market picks its head up a little bit, perhaps up to $7.” The trader added that he saw technical support in the $5.50 to $5.55 area and below that at $5.25.

A Washington, DC-based broker reported hedge selling by gas producers. “The question is, are they a contrary indicator? They have been saying, ‘It’s got to come back, it’s got to come back,’ and then they finally give in and say ‘Oh heck, sell it.'”

The broker said he had plotted the yearly highs and lows for gas prices, and the majority of the time the highs were in December and the lows in January. “Once the end of winter is perceived by the market, it ends in a thud. The question is if selling on Dec. 5 is a good idea. The market may work lower into January.”

Curiously, others also see support developing in the mid $5 range. Technically the market is in new, low territory, and Jim Ritterbusch of Ritterbusch and Associates points out that Thursday’s decline dropped below “a shelf of lows in the $6.23 area that were validated for more than three weeks.” According to Ritterbusch, the congestion of prices during that three-week period sets up a further move lower “of roughly 77 cents from yesterday’s [Thursday’s] downside breakout point. This would imply a further price decline to as low as the $5.46 area,” he said.

Bill O’Grady of Confluence Investment Management in St. Louis said the “fundamentals aren’t that bad. You’ve got inventories tightening up, and there’s nothing out there that suggests that the weather is about to get mild. The problem is you’ve got oil trading down [below] $43/bbl and even though oil and natural gas shouldn’t be that tightly correlated, they are.”

The relationship between crude oil and natural gas prices is often hotly debated, but those who follow the linkage may want to heed a recent Bloomberg poll. A survey of 35 analysts showed that nearly half, or 17, said oil prices would decline through Dec. 12. Eight said prices would rise and 10 said there would be little change. Last week’s survey showed that 37% predicted a decline in oil prices.

©Copyright 2008Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.