US gas storage near record high

Sam Fletcher
Senior Writer

The US winter heating season ended Mar. 31 with 1.569 tcf of natural gas still in underground storage, "the second highest level ever," said Robert S. Morris, Banc of America Securities LLC, New York.

That's down 127 bcf from the same period a year ago but 337 bcf above the 5-year average. The Energy Information Administration reported the injection of 58 bcf of gas into US underground storage in the week ended Mar. 30, vs. withdrawals of 22 bcf the prior week and 10 bcf during the same period in 2006. The latest withdrawal of gas from storage "does not appear to reflect any overall change in domestic supply-demand fundamentals," Morris said. The Nov. 1-Mar. 30 heating season was 2.5% warmer than the 10-year average, he said.

In a separate monthly report, EIA said total US "organic" (excluding, or adding back, hurricane-related shut-ins) gas production declined 0.7% sequentially in January but increased 0.5% from year-ago levels. "January production was negatively impacted by well 'freeze-offs' in the Midcontinent and Rockies due to ice storms," Morris said. EIA revised its 2006 production estimate to a 3% increase from year-ago levels (1.6% organic) vs. a previous estimate of a 3.3% increase. "Our models still yield a 2.4% year-over-year increase (0.7% organic) for last year. Thus, our long-held proprietary models continue to yield slightly lower growth estimates vs. the EIA's projections but indicate similar trends," Morris said.

"Our 2007 production growth forecast is still just over 3% (1.6% organic), with nearly one third of the organic increase due to the start-up of the eastern deepwater Gulf of Mexico Independence Hub in the third quarter, which may in fact come on line sooner or ramp up quicker than we are now modeling," said Morris.

Captives released
After nearly 2 weeks of tough talk, Iran's President Mahmoud Ahmadinejad suddenly decided to release 15 captive UK naval personnel as an Easter holiday "gift" to the British people. Eight British sailors and seven marines flew to London from Tehran Apr. 5. They were seized Mar. 23 in the Persian Gulf by naval units of Iran's Revolutionary Guard after the British personnel finished inspecting a merchant ship for possibly smuggled goods just outside the Shatt al-Arab waterway dividing Iraq and Iran.

Iran claimed the inspectors trespassed into its territory and threatened to put them on trial. However, UK officials said data from a position-tracking satellite prove the British personnel were 1.7 nautical miles inside Iraqi waters when they were illegally seized.

Neither side admitted wrongdoing. Ahmadinejad announced the release after first pinning a medal on the commander of the Iranian unit who took the prisoners. Even as the captives returned home, British Prime Minister Tony Blair called for continued international pressure on Iran, blaming elements of the Iranian government for backing militants in Iraq, where four British soldiers and a translator were slain in an ambush hours before the freed crew touched down. The UK, like the US, is a permanent member of the United Nations Security Council, which is still trying through trade sanctions to force Iran to postpone its nuclear program.

Oil stocks and prices
The May contract price for benchmark US crude fell Apr. 4 in the New York market following Ahmadinejad's decision to release the captives. The loss was limited, however, by the EIA's report that US gasoline inventories fell for the eighth consecutive week, down 5 million bbl to 205.2 million bbl in the week ended Mar. 30. That draw "was larger than expected, but it includes a correction for a report mistake in [the previous] edition when the stock draw came out less than expected," said Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland. "The correction does not change anything to the current stock level, but we need to keep in mind that when adjusting for the correction we are drawing only at half the weekly pace suggested by [the latest] report," he said.

However, Eitan Bernstein at Friedman, Billings, Ramsey Group Inc., Arlington, Va., said: "This should serve to remind investors that the refined product supply-demand balance remains tight, and with gasoline inventories currently 3% below comparable year-ago levels and the summer driving season less than 60 days away, the outlook for refining margins remains very favorable, in our view."

Commercial US crude inventories registered a larger-than-expected gain of 4.3 million bbl to 332.7 million bbl during the same period. Distillate fuel stocks were unchanged at 118 million bbl.

(Online Apr. 9, 2007; author's e-mail: samf@ogjonline.com)


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