Sam Fletcher
Senior Writer
HOUSTON, Jan. 15 -- Wholesale prices for natural gas shot up to a record $47/Mcf in New York City on Wednesday—from $30/Mcf Tuesday—as extremely cold weather moved into the northeastern US.
"The reason is a deliverability issue," explained analysts Thursday at Enerfax Daily. "There is plenty of supply around, but no way to get it to the people who need it. There was more demand than pipeline capacity to New York this week."
Winter weather advisories and storm warnings were issued Thursday for much of the US Northeast. Cold weather and strong winds triggered forecasts of dangerous wind chill temperatures as low as -45º F. in eastern Massachusetts.
However, the scramble for natural gas supplies apparently was isolated to New York and therefore was expected to be short-lived. Spot prices for natural gas in most other areas were reportedly slipping Thursday.
Cold weather also sparked fears of a rapid draw on East Coast inventories of propane late last week. Distributors reported rack prices for propane in that areas had spiked in recent week but that supplies seemed to be sufficient.
Gas futures price rises
The February natural gas futures contract inched up by 5.8¢ to $6.39/Mcf Wednesday on the New York Mercantile Exchange, as traders scrambled to cover open sales positions near the end of that session and in advance of the latest arctic front. That same contract had plunged by a total 95.8¢ in the previous 2 sessions as traders shrugged off forecasts of cold weather.
The cash spot market for natural gas remained soft, analysts said.
Early Thursday, the US Energy Information Administration reported 153 bcf of natural gas was withdrawn from US underground storage during the week ended Jan. 9. That was up from 52 bcf the previous week and 136 bcf during the same period in 2003. However, it was less than the consensus amount expected by Wall Street analysts for last week.
US gas storage now stands at 2.4 tcf, representing surpluses of 219 bcf vs. year-ago levels and 184 bcf above the 5-year average.
Other energy prices
Other energy prices were mixed Wednesday. The February contract for benchmark US sweet, light crudes gained 7¢ to $34.50/bbl on NYMEX, while the March contract lost 22¢ to $33.79/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., advanced by 8¢ to $34.53/bbl Wednesday.
Refined products declined. Heating oil for February delivery fell by 2.18¢ to 96.74¢/gal Wednesday on NYMEX. Unleaded gasoline for the same month dipped by 0.68¢ to 99.90¢/gal.
The American Petroleum Institute reported late Wednesday that US oil stocks increased by 312,000 bbl to 268 million bbl during the week ended Jan. 9. US inventories of distillate fuel stocks increased by 2.1 million bbl to 140.6 million bbl, API said, while gasoline stocks were up by 1.4 million bbl to 207.4 million bbl.
EIA earlier reported commercial US crude inventories plunged by 5 million bbl to 264 million bbl during the week ended Jan. 9—the lowest level since the fall of 1975 (OGJ Online, Jan. 14).
"Such thin levels of inventory cover above operational minimum support high prices and add to volatility. One needs no other explanation for high prices, and in particular one need not rely on any arguments based on speculative interest," said Paul Horsnell, head of energy research, Barclays Capital Inc., London.
"At this precise instant, the degree of supply flexibility in the world oil system as a whole appears fairly limited. Commercial inventories are low, and there currently appears to be extremely limited spare production capacity anywhere outside Saudi Arabia," he said Thursday.
"One might argue over precisely how low crude oil inventories have fallen, but the main point is simply that they are very low indeed," Horsnell said. "We should expect some upwards drift in crude oil inventories from this point, but it might prove to be a long process before any degree of comfort is reestablished."
In London, the February contract for North Sea Brent oil lost 34¢ to $31.03/bbl Wednesday on the International Petroleum Exchange. Gas oil for February delivery lost $10.25 to $272.50/tonne. The February natural gas contract was down by 15.1¢ to the equivalent of $4.99/Mcf on IPE.
The average price for the Organization of Petroleum Exporting Countries' basket of seven benchmark crudes fell by 55¢ to $30.53/bbl Wednesday, still well above the group's target of $22-28/bbl.
"Over the past year, the value of the OPEC basket has spent almost as much time above the $22-28 target band as it has spent in the band," said Horsnell. "It has been above the band for 49% of trading days, in the upper half for 44% of days, and in the lower half for 7% of days. Prices have not fallen below the band since March 2002."
Contact Sam Fletcher at [email protected]
