Market watch: Price for expiring gas futures contract hits 15-month high on NYMEX

By OGJ editors

HOUSTON, Sept. 27 -- Futures prices for oil and petroleum products continued to slip Thursday on the New York Mercantile Exchange, but the October natural gas contract registered "the highest expiration price in 15 months in a volatile choppy market," analysts reported.

After losing a cumulative 48.4¢ in the two previous trading sessions, the expiring October gas contract shot up 19.2¢ to $3.69/Mcf Thursday on NYMEX.

"The market opened higher and continued to rise late. As traders closed out their positions, volatility got huge, and most were buying, with not many sellers around," explained analysts at Enerfax Daily on Friday.

Meanwhile, on the Henry Hub cash market, natural gas for next day delivery declined 15¢ to $3.61/Mcf Thursday.

The November contract for benchmark US light, sweet crudes fell 23¢ to $30.41/bbl on NYMEX, while the December contract slipped by 8¢ to $30.21/bbl. Unleaded gasoline for October delivery lost 0.88¢ to 80.81¢/gal; heating oil for the same month was down 0.23¢ to 80.4¢/gal.

Traders were beginning to take profits by eliminating some long positions ahead of the weekend, analysts said.

In London, the November contract for North Sea Brent oil declined 17¢ to $28.89/bbl on the International Petroleum Exchange. However, brokers said that market is likely to rebound above $29 as traders continue to react to deteriorating relations between the US and Iraq.

The October natural gas contract inched up 1.4¢ to the equivalent of $2.73/Mcf on the IPE.

The average price for the Organization of Petroleum Exporting Countries' basket of seven benchmark crudes dipped 2¢ to $28.17/bbl Thursday.

Despite 2 consecutive days of declines from a high of $28.41/bbl on Tuesday, OPEC's average basket price has been on the topside of its $22-28/bbl targeted price band all week. The last time OPEC's basket price punched through the top of that band was in August 2000, "and then prices did not fall back into the band until that December," said Paul Horsnell, head of energy research for London-based JP Morgan Chase & Co.

The decision last week by OPEC ministers to retain current production quotas through the rest of this year "gave the green light to traders to push prices up out of the top of the OPEC target band," Horsnell said. "For the first time in 21 months, the market has the chance to see how high it can go before vertigo sets in."

In refusing to increase production quotas, OPEC ministers claimed the escalation of world oil prices in recent months was caused primarily by political tensions in the Middle East and not by market fundamentals of supply and demand.

However, Horsnell noted, "For a supposedly over-supplied market, we are getting some very low, and still falling, crude oil inventory numbers."

Meanwhile, the threat of Tropical Storm Isidore this week forced a temporary shut in of production in the central Gulf of Mexico amounting to 1.4 million b/d of oil and 13.5 bcfd of gas. It also closed for several days the Louisiana Offshore Oil Port, where 1.4 million b/d of imported oil normally is offloaded, forcing the "bunching" of awaiting supertankers.

That "bunching of imports and loss of production will be reflected in the weekly US data in coming weeks, raising the odds of some erratic (price) movements, with a continuing downwards trend for crude oil availability," Horsnell warned.

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