MARKET WATCH
Energy prices increase

Sam Fletcher
Senior Writer

HOUSTON, May 31 -- The July natural gas contract price rebounded May 27 but failed to narrow the significant divergence between natural gas and crude prices that opened last week in the New York futures market as the expiring June contract fell in three previous sessions.

Natural gas for July delivery gained 15.8¢ to $6.37/MMbtu in a shortened trading session May 27 on the New York Mercantile Exchange ahead of the 3-day US Memorial Day holiday. The July contract for benchmark US light, sweet crudes gained 84¢ to $51.85/bbl during that same session. The May gasoline contract increased by 2.75¢ to $1.48/gal, while heating oil for the same month dipped by 0.25¢ to $1.45/gal.

As crude futures prices climbed last week, the expiring June natural gas contract lost a total of 28.4¢ over three sessions to finish at to a new 3-month low of $6.12/MMbtu on May 26, almost 10% below the price level where it began as the near-month contract on NYMEX, which was closed May 30 for the Memorial Day holiday.

On May 26, the Energy Information Administration reported the injection of 93 bcf of natural gas into US underground storage during the week ended May 20, compared with injections of 90 bcf the previous week and 89 bcf during the same period a year ago. As of May 20, US gas storage totaled 1.69 tcf, up by 228 bcf from year-ago levels and 303 bcf above the 5-year average.

"Gas prices have been declining for the last 7-8 weeks as the gas surplus has stabilized in the neighborhood of 400-430 bcf vs. 10-year norms," said Stephen A. Smith, founder and president of Stephen Smith Energy Associates, Natchez, Miss. In a May 30 report, Smith projected a US natural gas storage surplus of 415 bcf for the week ended May 27.

He noted, "During much of the 1994-2003 period, there was spare gas production capacity that could be drawn during the coldest weeks to dampen the storage draw response to cold weather. But this is no longer the case since gas production now runs at capacity all year long. In addition, gas now supplies a larger share of winter power generation than it did 3-10 years ago.

In London, the July contract for North Sea Brent advanced by 9¢ to $50.16/bbl on the International Petroleum Exchange.

The Vienna headquarters for the Organization of Petroleum Exporting Countries was closed for public holidays May 26-27. However, it said the OPEC basket of seven benchmark crudes increased by 28¢ to $47.45/bbl on May 27 and by 17¢ to $47.62/bbl on May 30. So far this year, OPEC's basket price has averaged $45.60/bbl.

Contact Sam Fletcher at samf@ogjonline.com

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