MARKET WATCH
NYMEX closed to mourn Ford

Sam Fletcher
Senior Writer

HOUSTON, Jan. 3 -- Floor trading on the New York Mercantile Exchange was closed Jan. 2 to observe a day of mourning for former President Gerald Ford, but energy prices were mixed in other areas.

In London, the February IPE contract for North Sea Brent crude lost 42¢ to $60.44/bbl. However, the January gas oil contract regained $1.75 to $518.25/tonne. The average price for the Organization of Petroleum Exporting Countries' basket of 11 benchmark crudes climbed by 11¢ to $56.08/bbl.

The US Energy Information Administration is scheduled to release its weekly report on US petroleum inventories Jan. 4 because of the Jan. 1 holiday for federal employees. Meanwhile, EIA revised US demand for crude down by 567,000 b/d to 20.8 million b/d in October; its preliminary estimate of 21.3 million b/d would have represented a 5.3% gain from a year earlier to the highest level ever recorded for October.

Energy price outlooks
Analysts in the Houston office of Raymond James & Associates Inc. reported Jan. 3 that firm is lowering its 2007 oil price forecast to $67/bbl from $70/bbl previously and its natural gas price estimate for the new year to $7.50/Mcf from $10/Mcf. "We still expect oil prices to firm as we move through 2007," they said. "On the North American gas front, however, our 2007 natural gas outlook has deteriorated substantially from what we were expecting just a few months ago. The change to our outlook is strictly weather related."

The near-month gas futures price currently is hovering around $6.30/MMbtu on NYMEX, while crude has fallen below $61/bbl on premarket trading, Raymond James analysts said. "We still look for gas prices to ramp up in the second half of the year as gas supplies begin to fall off; however, we now do not foresee gas prices reaching a more normal 7:1 ratio with oil prices until 2008," they said.

As for 2006 price estimates, Raymond James analysts said, "For the first time in years, our natural gas forecast of $10.50/Mcf was actually too high. In fact, our estimate was more than 30% higher than the actual full-year average of $7.24. For the fourth year in a row, however, our bullish call on oil still proved too conservative, due in part to escalating concerns about Iran in the first half of the year. Even though our original $58/bbl oil forecast for 2006 was more than $2 (or 4%) ahead of Street consensus at the time, it ended up falling short of the actual average by $7 (or 11%)."

Phil McPherson, oil and gas research analyst at C.K. Cooper & Co., Irvine, Calif., noted that the February gas contract ended 2006 at $6.30/MMbtu Dec. 29 on NYMEX. That was "lower than last year's closing price for the first time in 5 years and a 37% decline year-over-year for the sector," he reported. With a glut of gas supplies and continued mild weather across most of the US, the price for gas is likely to average a modest $7/Mcf for 2007 and could even touch $5/Mcf this year if warm weather persists, McPherson said, adding that the front-month crude futures price on NYMEX could fall as low as $55/bbl by the end of the first quarter if a mild winter continues.

In other news, Iraqi officials said Jan. 2 they resumed pumping crude from their Kirkuk oil field in the north to the Turkish export terminal of Ceyhan following a 2-week suspension. Persistent sabotage has kept Iraq's northern oil pipelines and installations shut in most of the time since the US-led invasion in 2003. Most of Iraq's crude is exported through terminals on the Persian Gulf at a rate of 1.5 million b/d.

Contact Sam Fletcher at samf@ogjonline.com.

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