Market watch: Natural gas passes $9/Mcf , heating oil hits record high on NYMEX

Sam Fletcher
Senior Writer

HOUSTON, Feb 25 -- Propelled by icy weather in the Midwest and Northeast US, the March natural gas contract slid past $9/Mcf to a 25-month high, while heating oil for the same month set a record high Monday on the New York Mercantile Exchange.

The natural gas contract peaked at $9.20/Mcf before closing at $9.14/Mcf, up $2.53, or 38%, for the day.

Heating oil hit an all-time high of $1.1535/gal Monday on NYMEX, surpassing the previous record of $1.15/gal in November 1979, before also retreating. It closed at $1.1467/gal, up 3.82¢ for the day.

"The (NYMEX natural gas) market opened way up at $8(/Mcf) but dipped back below $7.50(/Mcf) early (Monday) before turning back around and heading sharply higher for the rest of the day. The combined effects of cold weather, dwindling supplies, and lagging drilling programs have driven storage inventories 43% below a year ago," analysts at Enerfax Daily reported Tuesday.

On the cash spot market, they said, "Natural gas for next day delivery across the US and Canada was generally $5-10(/Mcf) higher yesterday. Natural gas for next day delivery at the Henry hub soared $5.75 to $12.50(/Mcf)."

Unusually cold weather has raised natural gas futures prices by 40% and heating oil prices by 22% in February, said other industry analysts.

Expiring contracts
Price volatility usually associated with contract expirations also added to Monday's fly-up, said John P. Herrlin Jr., first vice-president of the Merrill Lynch Global Securities Research & Economics Group. Those NYMEX contracts are scheduled to terminate trading Wednesday.

Herrlin reported Tuesday, "We believe the cold weather caused a price increase, in addition to short covering, which created a very unusual 1-day price movement in the near-month contract."

He said, "$9+/Mcf gas in February is not healthy for the demand side of the equation, but given the consistent above-average withdrawals (of natural gas from US underground storage) experienced over each of the last 6 weeks and the return of cold weather to the Northeast, many (traders) are now speculating on (seasonal) ending levels for storage."

"We think refill (of US gas storage) during the summer months may become an issue, but the persistence of truly silly prices will cause some type of elastic reaction," Herrlin said. He noted that spot gas prices hit $22/Mcf in the Northeast and $12/Mcf in the US Gulf Coast region Monday.

"A colder weather forecast for much of the US caught many (gas futures market) participants in a short squeeze, as many had no choice but to continue buying," agreed James K. Wicklund and other analysts at Banc of America Securities LLC in Houston.

"Although any demand destruction caused by higher prices can help offset the problem at hand, we believe the supply shortfall will more than offset any demand loss," Wicklund said.

Enerfax Daily analysts said that rebuilding potentially record-low US gas storage "will be far more difficult because the amount of new gas drilled in the US continues to dwindle as old fields yield less gas and demand rises as the economy recovers."

"Natural gas demand is expected to rise about 5% in 2003 after being flat in 2002, and US production is expected to fall about 2% after dipping 3% last year. Added to declining domestic production, Canadian imports fell for the first time since 1986 last year. Also, Canadian imports are expected to dip again this year by as much as 3% as it struggles to meet its own rising demand," Enerfax analysts said.

Other futures prices
The April contract for benchmark US sweet, light crudes jumped by 90¢ to $36.48/bbl Monday on NYMEX, while the May position advanced by 71¢ to $35.04/bbl. Unleaded gasoline for March delivery shot up 3.47¢ to $1.05/gal.

Meanwhile, US Energy Secretary Spencer Abraham said Tuesday that, if necessary, the US government is prepared to quickly release emergency oil reserves from the Strategic Petroleum Reserves to offset any disruption of Middle East oil supplies resulting from a war with Iraq.

At an informal meeting with energy ministers from the European Union in Thessaloniki, Greece, Alvaro Silva Calderon, secretary general of the Organization of Petroleum Exporting Countries, reaffirmed that group's determination to ensure secure oil supplies to international markets.

In London, reports that UK and US officials are ready to file a new resolution on Iraq with the United Nations Security Council spurred strong buying of oil futures on the International Petroleum Exchange. The IPE market is being driven by a perception that diplomatic efforts have almost been exhausted and that war is now close, brokers said.

The April contract for North Sea Brent escalated by 88¢ to $33.15/bbl Monday. However, brokers said there is still room for substantial rises; a surge to a high of $40/bbl, seen at the start of the 1990 conflict between Iraq and Kuwait, would be possible if Iraq is attacked by US-led forces, they said.

The March natural gas contract lost 2.8¢ to the equivalent of $2.70/Mcf on IPE.
The average price for OPEC's basket of seven benchmark crudes gained 60¢ to $32.44/bbl Monday.

Contact Sam Fletcher at samf@ogjonline.com

Related Articles

Study says most of California's fracturing done in Kern County

01/26/2015 Almost all hydraulic fracturing done in California happens in the southwest portion of the San Joaquin basin in Kern County, said a scientific stud...

Watching Government: This year's 'infrastructure' matters

01/12/2015 In one of the busiest Decembers ever for oil and gas in the nation's capital, one word-infrastructure-kept popping up as a key challenge for 2015.

For the US economy, a falling oil price has drawbacks, too

01/05/2015

Cheer in the US about an economic lift from falling oil prices needs qualification.

Russia sanctions realign Arctic exploration, geopolitics

01/05/2015 The latest Western sanctions on Russia's Arctic gas industry, including OAO Gazprom and OAO Novatek, have had a geopolitical impact on the Kremlin....

Trinidad and Tobago to develop ‘master plan’ for gas development

12/29/2014 Trinidad and Tobago’s government has hired UK-based consulting firm Poten & Partners to develop a natural gas master plan for the Caribbean twi...

Woodside to buy Apache's interests in Wheatstone, Kitimat LNG for $2.75 billion

12/22/2014 Woodside Petroleum Ltd. has agreed to acquire interest in the Wheatstone LNG and Kitimat LNG projects, respectively in Western Australia and Britis...

EIA: US proved oil, gas reserves continue to climb

12/15/2014 US proved reserves of oil and natural gas have increased by 9% and 10%, respectively, according a recent report from the US Energy Information Admi...

Falling prices may pose new test for China oil policies, speakers say

12/15/2014 China, which successfully revised its oil strategy in response to new technologies since 2008, could face fresh tests if prices stay low for a prol...

Encana plans to hit the ground running in Permian

12/12/2014 Encana Corp. has announced its second major acquisition in a Texas oil play this year, agreeing in September to acquire Permian basin-focused produ...
White Papers

Transforming the Oil and Gas Industry with EPPM

With budgets in the billions, timelines spanning years, and life cycles extending over decades, oil an...
Sponsored by

Asset Decommissioning in Oil & Gas: Transforming Business

Asset intensive organizations like Oil and Gas have their own industry specific challenges when it com...
Sponsored by

Squeezing the Green: How to Cut Petroleum Downstream Costs and Optimize Processing Efficiencies with Enterprise Project Portfolio Management Solutions

As the downstream petroleum industry grapples with change in every sector and at every level, includin...
Sponsored by

7 Steps to Improve Oil & Gas Asset Decommissioning

Global competition and volatile markets are creating a challenging business climate for project based ...
Sponsored by

The impact of aging infrastructure in process manufacturing industries

Process manufacturing companies in the oil and gas, utilities, chemicals and natural resource industri...
Sponsored by

What is System Level Thermo-Fluid Analysis?

This paper will explain some of the fundamentals of System Level Thermo-Fluid Analysis and demonstrate...

Accurate Thermo-Fluid Simulation in Real Time Environments

The crux of any task undertaken in System Level Thermo-Fluid Analysis is striking a balance between ti...

6 ways for Energy, Chemical and Oil and Gas Companies to Avert the Impending Workforce Crisis

As many as half of the skilled workers in energy, chemical and oil & gas industries are quickly he...
Sponsored by
Available Webcasts

On Demand

Global LNG: Adjusting to New Realities

Fri, Mar 20, 2015

Oil & Gas Journal’s March 20, 2015, webcast will look at how global LNG trade will be affected over the next 12-24 months by falling crude oil prices and changing patterns and pressures of demand. Will US LNG production play a role in balancing markets? Or will it add to a growing global oversupply of LNG for markets remote from easier natural gas supply? Will new buyers with marginal credit, smaller requirements, or great need for flexibility begin to look attractive to suppliers? How will high-cost, mega-projects in Australia respond to new construction cost trends?

register:WEBCAST


US Midstream at a Crossroads

Fri, Mar 6, 2015

Oil & Gas Journal’s Mar. 6, 2015, webcast will focus on US midstream companies at an inflection point in their development in response to more than 6 years shale oil and gas production growth. Major infrastructure—gas plants, gathering systems, and takeaway pipelines—have been built. Major fractionation hubs have expanded. Given the radically changed pricing environment since mid-2014, where do processors go from here? What is the fate of large projects caught in mid-development? How to producers and processors cooperate to ensure a sustainable and profitable future? This event will serve to set the discussion table for the annual GPA Convention in San Antonio, Apr. 13-16, 2015.

This event is sponsored by Leidos Engineering.

register:WEBCAST


The Future of US Refining

Fri, Feb 6, 2015

Oil & Gas Journal’s Feb. 6, 2015, webcast will focus on the future of US refining as various forces this year conspire to pull the industry in different directions. Lower oil prices generally reduce feedstock costs, but they have also lowered refiners’ returns, as 2015 begins with refined products priced at lows not seen in years. If lower per-barrel crude prices dampen production of lighter crudes among shale plays, what will happen to refiners’ plans to export more barrels of lighter crudes? And as always, refiners will be affected by government regulations, particularly those that suppress demand, increase costs, or limit access to markets or supply.

register:WEBCAST


Oil & Gas Journal’s Forecast & Review/Worldwide Pipeline Construction 2015

Fri, Jan 30, 2015

The  Forecast & Review/Worldwide Pipeline Construction 2015 Webcast will address Oil & Gas Journal’s outlooks for the oil market and pipeline construction in a year of turbulence. Based on two annual special reports, the webcast will be presented by OGJ Editor Bob Tippee and OGJ Managing Editor-Technology Chris Smith.
The Forecast & Review portion of the webcast will identify forces underlying the collapse in crude oil prices and assess prospects for changes essential to recovery—all in the context of geopolitical pressures buffeting the market.

register:WEBCAST


Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!

 

Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected