HOUSTON, May 2 -- Futures prices for natural gas slipped Thursday on the New York Mercantile Exchange after the US Energy Information Administration reported a surprisingly large injection of 57 bcf of gas into US underground storage during the week ended Apr. 25.
That compared with injections of 61 bcf the previous week and 31 bcf during the same period a year ago.
The June natural gas contract lost 11.8¢ to $5.27/Mcf Thursday on NYMEX. "The market opened steady but quickly dipped under $5.30(/Mcf) after the EIA released the storage data and mainly traded between there and $5.25(/Mcf) for the rest of the day," said analysts Friday at Enerfax Daily.
US gas storage now stands at 741 bcf, down 865 Bcf, or 54%, from a year ago, and down 563 bcf or 43% below the 5-year average. "With inventory builds from April through October averaging about 1.9 tcf, storage at the beginning of November could stand at just 2.6 tcf, well below the 3 tcf typically deemed comfortable," Enerfax analysts said. "The (latest) large build indicates that next week's storage report could also be a large build. Look for next week's EIA report to show an increase of 85-95 bcf , compared to an injection of 39 bcf a year ago. Look for the market to test the yesterday's $5.25(/Mcf) intraday low today as prices ease ahead of a low-demand weekend."
"We estimate that at this point just over 4 bcfd of natural gas demand has been 'backed out' vs. last year," said Robert S. Morris, an analyst with Banc of America Securities, New York, in a separate report Thursday. That includes "roughly 2.5-3 bcfd" lost to fuel switching and 1-1.5 bcfd lost to conservation and plant closures in energy intensive industries such as chemicals, metals, and paper manufacturing.
More than 5 bcfd of gas demand, "on average" must be backed out through October "in order for storage just to exceed" 2.7 tcf of gas in storage at the start of November, said Morris. "We estimate that nearly 4 bcfd on average will be backed out in the second quarter, rising to close to 6 bcfd for July through 0ctober, concurrent with a further drop in oil prices," he said.
Morris expects a "significant portion of incremental demand destruction"1-1.5 bcfd on averagewill likely result from incremental fuel switching "as No. 2 fuel oil regains its price advantage over natural gas." Another 500 MMcfd will be lost to "curtailments in the ammonia industry as the planting seas winds down," he said.
US gas prices will have to remain "at least in a range of $5-5.50/MMbtu or perhaps higher" to back out 5 bcfd of gas demand though October. Higher gas prices will be required "if oil prices do not drop below $26/bbl," said Morris.
The June contract for benchmark US light, sweet crudes gained 23¢ to $26.93/bbl Thursday on NYMEX, while the July contract jumped by 38¢ to $25.84/bbl. Heating oil for June delivery was up 0.59¢ to 69.1¢/gal. However, unleaded gasoline for the same month lost 0.5¢ to 79.02¢/gal.
In London, the June contract for North Sea Brent oil edged 14¢ to $23.82/bbl largely as a result of traders buying commodities to close out short sales ahead of a holiday Monday in the UK. The June natural gas contract dipped by 1.6¢ to the equivalent of $2.51/Mcf on IPE.
Reports that Organization of Petroleum Exporting Countries might make additional production cuts also helped boost London oil prices Thursday, said brokers.
Meanwhile, US officials in Iraq indicated that country's oil production has increased to 235,000 b/d from zero just before the war. They said oil fields in southern Iraq could be producing 800,000 b/d within 3-6 weeks and that the northern oil fields soon could be producing a similar amount.
The average price for the OPEC basket of benchmark crude oils gained 13¢ to $23.85/bbl Thursday.
Contact Sam Fletcher at firstname.lastname@example.org