MARKET WATCH
Warm weather undermines energy prices

Sam Fletcher
Senior Writer

HOUSTON, Dec. 28 -- The US outlook for warm weather continued to push down energy prices Dec. 27, with light trading in New York contributing to the market's weakness.

Natural gas led the retreat with the expiring January contract plummeting by $1.26 to settle at $11.02/MMbtu on the New York Mercantile Exchange. Earlier in that session, the gas contract had traded as low as $10.96/MMbtu, dipping below $11/MMbtu for the first time since mid-September.

"It was the third straight decline for natural gas prices, which have fallen 23% since [Dec. 21], and the sell-off triggered a decline in other energy futures," said analysts at Enerfax Daily. The National Weather Service is predicting higher-than-normal temperatures for most of the US through Jan. 9.

Gas production curtailed
Meanwhile, the US Department of Energy said current natural gas production in the Gulf of Mexico is at 8 bcfd, down from 10 bcfd before Hurricane Katrina tore through the major producing area in the central gulf in late August. "Hurricanes Katrina and Rita significantly damaged the natural gas deliverability network in the Gulf of Mexico. Every segment of the production chain was affected," DOE said in a Dec. 28 report.

Production platforms were damaged or destroyed, as were offshore pipelines. The storm surge damaged numerous onshore gas processing plants, destroying key components and leaving behind a large amount of debris. "While a number of facilities have been brought back online, others required lengthy clean-up and restoration periods," officials said.

Many of those unrepaired facilities are "along deliverability paths where the gas could not otherwise be rerouted to get to market due to either physical or economic constraints," DOE said, adding, "The return to operation of these facilities should ease the bottleneck effect in some key natural gas producing regions in the gulf." The offshore pipelines to be repaired are subsea and therefore are unlikely to be completed in the few remaining days of 2005, officials said.

Nevertheless, analysts say the US has enough natural gas in underground storage to meet demand, especially in warmer weather.

Energy prices
The February contract for benchmark US light, sweet crudes declined by 27¢ to $58.16/bbl Dec. 27 on NYMEX. The March contract lost 32¢ to $58.68/bbl. On the US spot market, however, West Texas Intermediate at Cushing, Okla., advanced by 7¢ to $58.16/bbl. Gasoline for January delivery dropped 3.71¢ to $1.51/gal on NYMEX. Heating oil for the same month fell by 6.83¢ to $1.64/gal.

"Overall US heating fuel demand is forecast to be 28% below normal [through] Dec. 31, with heating oil demand in the Northeast about a quarter less than usual," said Enerfax analysts.

In London, the February contract for North Sea Brent crude declined by 40¢ to $56.29/bbl on the International Petroleum Exchange. Gas oil for January fell by $8 to $496/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 11 benchmark crudes lost 39¢ to $51.14/bbl on Dec. 27.

Contact Sam Fletcher at samf@ogjonline.com.

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