Sam Fletcher
Senior Writer
HOUSTON, Aug. 11 -- With no new market indicators to support the earlier rally, energy futures prices declined Friday in profit taking by traders.
Spurred by the smallest weekly injection of natural gas into US storage in the last 3 months, trade on the New York Mercantile Exchange turned bullish last Thursday, pushing near-month natural gas futures prices past $5/Mcf for the first time since July 21 and pulling up prices for competitive fuel oil and other energy commodities in the process.
Natural gas market dips
However the September natural gas contract dipped by 4.5¢ Friday to $5.04/Mcf on NYMEX.
Some technical traders thought Thursday's strong close, with the September contract up by 33.7¢ to $5.08/Mcf, might have set the stage for more gains. But others figured the market was overbought, following a 10% price run-up that had extended over 3 trading sessions, analysts reported Monday at Enerfax Daily.
"The market seems to be reconsidering whether last Thursday's spike was really such a good idea. The trend in storage is still bearish and the weather outlook remains relatively benign, with no overall pattern of intense heat and no storms in sight in the Gulf of Mexico," said Enerfax analysts.
The US Energy Information Administration reported Thursday that 74 bcf of natural gas was injected into US underground storage during the week ended Aug. 1 (OGJ Online, Aug. 7, 2003).
Bullish outlook
In another report Monday, Wayne Andrews, an analyst in the Houston office of Raymond James & Associates Inc., St. Petersburg, Fla., noted that US natural gas production has continued to fall, despite a 30% increase in drilling activity in the past year. "Drilling activity among the majors and gas utilities has actually declined by 11% since the start of the year," he said. "This brings to light an even more astonishing reality: The independents and 'mom-and-pops' (small, privately owned producers) are driving all of the drilling activity increases, with little production response to show for it."
As a result, Andrews said, "Our bullish thesis has been and continues to be centered around the underlying problem of falling US natural gas production. Much like in the 1970s, when oil production continued to fall regardless of how many rigs were drilling, we think we are nearing (if not at) a similar crossroads in the US natural gas supply picture. Given the inherent rate of decline in US natural gas wells today, combined with what is still a muted response to drilling activity, we expect natural gas production levels to continue trending south for the next several quarters."
That and persistently high oil prices near $30/bbl "should keep average US natural gas prices in the $6/Mcf range," he said. "Furthermore, even with an unforeseen pullback in oil prices, we would expect at least $5/Mcf average natural gas prices for the foreseeable future."
Other energy prices
The September contract for benchmark US light, sweet crudes lost 21¢ to $32.18/bbl Friday on NYMEX, while the October position retreated by 16¢ to $32.07/bbl. Heating oil for September delivery fell by 1.12¢ to 84.33¢/gal. Unleaded gasoline for the same month declined by 0.85¢ to 95.5¢/gal.
In London, the September contract for North Sea Brent oil dropped 26¢ to $29.99/bbl on the International Petroleum Exchange. The September natural gas contract lost 4.2¢ to the equivalent of $2.49/Mcf on IPE.
However, the average price for the Organization of Petroleum Exporting Countries' basket of seven benchmark crudes continued to advance Friday, up 15¢ to $29.22/bbl.
For last week as a whole, the OPEC basket price averaged $28.72/bbl, up by $1.46 from the previous week's average. The OPEC basket has averaged $28.02/bbl so far this year, just above its official target of $22-28/bbl. That's up from an average price of $24.36/bbl for all of 2002.
Contact Sam Fletcher at [email protected]
