MARKET WATCH
Energy prices resume downward trend

Sam Fletcher
Senior Writer

HOUSTON, Apr. 20 -- Energy prices resumed their downward trend Apr. 19 after Enbridge Inc., Calgary, restarted the portion of its crude oil pipeline that was shut down Apr. 15 following a release of heavy crude oil.

The line—part of a system that normally moves 490,000 b/d of Canadian crude to refineries in the US Midwest—will operate under reduced pressure of 80%, pending investigation of the mishap. The portion of pipeline where the release occurred was removed for analysis. Enbridge officials said workers have recovered much of the spilled crude and are in the process of cleanup and site remediation, in compliance with government regulations (OGJ Online, Apr. 18, 2007).

Separately, "The Nigerian government reportedly announced that the Forcados [oil] fields, which have been offline for over a year due to militant attacks, should restart at the end of May," said analysts in the Houston office of Raymond James & Associates. "The field has the ability to produce 380,000 b/d, though the fields may produce at lower rates when operations resume. However, crude prices may see some support ahead of prospective tension related to tomorrow's presidential elections in Nigeria," the analysts said.

Energy prices
The May contract for benchmark US light, sweet crudes dropped $1.30 to $61.83/bbl on the New York Mercantile Exchange where it is to expire at the close of trade on Apr. 20. The June contract lost $1.06 to $63.32/bbl. On the US spot market, West Texas Intermediate a Cushing, Okla., was down $1.30 to $61.84/bbl. Heating oil for May delivery slipped by 0.08¢ to remain essentially unchanged at $1.81/gal on NYMEX. The May contract for reformulated blend stock for oxygenate blending (RBOB), however, inched up by 0.55¢ to $2.09/gal.

The May natural gas contract dipped by 0.5¢ to $7.49/MMbtu on NYMEX. On the US spot market, however, natural gas at Henry Hub, La., increased by 2.5¢ to $7.51/MMbtu.

The counter-seasonal withdrawal of 46 bcf of natural gas from US underground storage in the week ended Apr. 13 "does not appear to reflect any overall change in domestic supply-demand fundamentals," said Robert S. Morris, Banc of America Securities LLC, New York.

Meanwhile, the BAS's chemicals team estimates ammonia production will increase 5-10% in 2007 due to increased fertilizer usage resulting from higher corn demand, primarily due to the uptick in ethanol demand. "However, with the ammonia industry representing less than 2% of total US natural gas demand, the increase in domestic natural gas demand for the full year from this uptick in ammonia production should be only a little more than 50 MMcfd," Morris reported.

At the same time, BAS's alternative energy team projects a 35% increase in domestic ethanol production (wherein natural gas is an input into the conversion of corn to ethanol), which should yield an incremental 150 MMcfd increase in natural gas demand in 2007. "Thus, the combined uptick in natural gas demand from the increase in ammonia and ethanol production this year will be 200 MMcfd, adding only 0.04% to total projected domestic natural gas demand," said Morris.

In London, the June IPE contract for North Sea Brent crude dropped 10¢ to $65.94/bbl. The May gas oil contract gained $3.25 to $573.50/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 11 benchmark crudes inched up by 1¢ to $61.85/bbl on Apr. 19.

Contact Sam Fletcher at samf@ogjonline.com.

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