Weather drove energy prices in the final days of 2005, with the front-month natural gas futures contract dropping just before the Christmas holiday to the lowest point since November on the New York market.
Speculators at first ignored US Weather Bureau forecasts for warmer weather in late December as the January natural gas contract jumped by 41¢ to $14.04/MMbtu Dec. 19 at the start of that trading week. In fact, it was the only front-month energy commodity to post a gain that day, “as short-covering by [investment] funds drove the market higher even with forecasts for milder weather,” said analysts at Enerfax Daily.
Natural gas inched up to $14.08/MMbtu in light trading in the next session, buoyed by rising crude market prices. On Dec. 21, it jumped again to $14.27/MMbtu, as speculators and hedge funds shrugged off bearish weather forecasts.
However, gas futures nose-dived to $12.92/MMbtu Dec. 22 and continued to tumble, expiring at $12.28/MMbtu Dec. 23, ahead of the Christmas holiday. “The contract lost 12% since Dec. 22 on a retreating cash market and expectations [that] inventories of heating oil and natural gas are adequate to meet winter demand,” said Enerfax analysts. “Warmer-than-normal weather is expected for most parts of the US until after the first of the year. Private forecasters predict that temperatures in the Northeast will average warmer than normal in January and March but colder than normal in February.”
The US Energy Information Administration reported Dec. 22 the withdrawal of 162 bcf of natural gas from US underground storage in the week ended Dec. 16. That was below the consensus of Wall Street analysts, down from the withdrawal of 202 bcf the previous week but up from withdrawal of 123 bcf during the same period a year ago. US gas storage then stood at 2.8 tcf, down by 243 bcf from last year’s level but 64 bcf above the 5-year average.
During the week reported, US weather was “roughly 15% colder than last year, almost 23% colder than the 10-year average, and almost 13% warmer than the prior week,” said Robert Morris at Banc of America Securities LLC, New York. “Winter to date, which accounts for almost 26% of the total heating degree days in the average winter, temperatures this year have been 3.2% colder than the 10-year average.”
Gulf gas shut in
The US Minerals Management Service reported Dec. 19 that 104 offshore platforms still were not operable in the federal sector of the Gulf of Mexico. The amount of production shut in on that date included 414,495 b/d, or 27.6%, of the crude, and 2 bcfd, or 20.1%, of the natural gas produced daily from those waters. Cumulative production lost Aug. 26-Dec. 19 totaled 104.6 million bbl of crude and 541.1 bcf of natural gas. That’s 19.1% of the crude and 14.8% of the gas produced annually from federal leases in the gulf, officials said.
“There have been two post-Katrina-Rita gas price spikes,” said Stephen A. Smith of Stephen Smith Energy Associates in Natchez, Miss., in a Dec. 26 report. “The first was in the immediate hurricane aftermath,” he said. “Following a sharp correction, the second spike was driven by very cold weather in the first 3 weeks of December.” That second spike he said, “has now rolled over in response to the very mild 2 weeks expected through Jan. 6.”
The weekly average spot market gas price for natural gas at Henry Hub, La., lost $1.38 to $13.11/MMbtu during the week ended Dec. 23. During that same period, the weekly average price for Gulf Coast distillate fuel declined by 53¢ to the equivalent of $11.99/MMbtu, said Smith. “It appears that the Gulf Coast distillate price served as an approximate cap for Henry Hub gas prices in the immediate posthurricane price explosion,” said Smith, noting “a similar ‘capping effect’” in 2003-04, “and in the most recent gas price surge.”
However he said, “While the current week’s Henry Hub price violates this distillate cap, we don’t believe that this anomalous condition is likely to last for more than a few weeks.” For most of 2004-05, customers capable of burning either natural gas or residual oil opted for gas because of its price advantage. “In the initial post-Rita environment, gas prices increased faster than distillate prices, and near parity was briefly achieved,” Smith concluded, adding, “This ratio declined with gas prices as posthurricane normalcy was gradually restored. But over the last few weeks, with the anticipation and subsequent arrival of the first arctic cold front, this ratio first returned to and now substantially exceeds posthurricane peaks.”
(Online Dec. 27, 2005; author’s e-mail: [email protected])
