Sam Fletcher
Senior Writer
HOUSTON, Jan.23 -- Natural gas futures prices fell Thursday to the lowest settlement since early December on the New York Mercantile Exchange after the US Energy Information Administration reported a lower-than-expected withdrawal of gas from US underground storage during the week ended Jan. 16.
However, gasoline futures jumped higher, pulling up NYMEX prices for crude and petroleum products, based on a rumor that a major refiner was buying contracts to cover its supply needs, analysts said.
Natural gas
The February natural gas contract closed at $5.83/Mcf on NYMEX Thursday, down by 31.6¢ for the day after bouncing off a mid-morning low of $5.60/Mcf to climb "slowly but steadily" through most of the remaining session.
A "late turnaround" in crude futures prices helped pull up the natural gas futures market from its lowest level earlier, said analysts Friday at Enerfax Daily. "The selling in natural gas came despite cold forecasts that continue to call for mostly below-normal temperatures in the Northeast and Midwest for the next week or so," they said.
EIA also reported Thursday that 156 bcf of natural gas were withdrawn from US underground storage during the week ended Jan. 16, up from 153 bcf withdrawn during the previous week but down from 219 bcf during the same period in 2003 (OGJ Online, Jan. 22, 2004).
It marked the fourth consecutive week that the amount of gas withdrawn from storage failed to meet expectations of Wall Street analysts. At the current storage level, said Enerfax analysts, "Weekly declines of 114 bcf are needed in the remaining 11 weeks [of peak winter demand] for inventories to drop to about 1 tcf by April."
Meanwhile, Stephen A. Smith, founder and president of Stephen Smith Energy Associates, Natchez, Miss., reported Wednesday, "Recent (natural gas) demand destruction has not occurred at the pace seen last May and June. High oil prices have tempered the loss of gas market share in key competitive markets. Weaker gas imports have also added some legitimacy to higher gas prices.
"That said, we still expect a correction to $5[/Mcf] or below by spring," he said.
US energy prices
Gasoline for February delivery jumped by 3.52¢ to $1.05/gal Thursday on NYMEX, for a total gain of 5.97¢/gal so far this week. Heating oil for the same month increased by 0.91¢ to $1.04/gal Thursday.
The March contract for benchmark US light, sweet crudes gained 35¢ to $34.93/bbl Thursday on NYMEX, while the April position advanced by 30¢ to $34.30/bbl. On the US spot market, however, West Texas Intermediate at Cushing, Okla., lost 55¢ to $34.43/bbl.
EIA said Thursday that US commercial crude oil inventories increased by 1.2 million bbl to 265.2 million bbl during the week ended Jan. 16. Distillate fuel inventories fell by 2.8 million bbl to 135.5 million bbl during the same period, while gasoline stocks rose by 1.1 million bbl to 209.5 million bbl (OGJ Online, Jan. 22, 2004).
"Crude inventories remain extremely low, and we believe thy are at the point where the US refining system has very little flexibility whatsoever, even though it is perfectly capable of continuing normal relations," said Paul Horsnell, head of energy research, Barclays Capital Inc., London.
"The point about reaching low levels of discretionary inventories is not that the system runs out of oil but rather that the buffer available to deal with even small shocks starts to become insufficient. With backwardization in prices [i.e., futures prices are progressively lower in the distant delivery months] still intact and with the heralded global surpluses of oil still rather conspicuous by their absence, we would expect the US system to be in effect running on empty for a while yet," he said.
US gasoline inventories "continue to follow a very smooth seasonal pattern as they have done for 2 months, and both production and demand are also following the seasonal pattern very closely," Horsnell said. "The only real departure from normality is a break from the seasonal build in inventories on the East Coast, which makes [the latest EIA] data mildly bullish for gasoline."
Meanwhile, Banc of America Securities LLC, New York, earlier this week raised its price forecast for benchmark US crude to $24/bbl for 2006 and beyond, from a previous assumption of $21/bbl.
Tyler Dann, an analyst in Banc of America's Houston office, listed three reasons for that change: "First, recent history with the 5-year average price 18-21% higher than the 10- and 20-year averages; second, our view that [the Organization of Petroleum Exporting Countries] will continue to successfully implement a price maximization strategy driven by Saudi Arabia's budget; and third, our long-term supply-demand forecast, which suggests that the call on OPEC's oil will grow at a 1.7% clip in the 2006-10 time frame, relative to a 0.7% shrinkage in the 2000-05 time frame," he said.
Other energy prices
In London, the March contract for North Sea Brent oil gained 25¢ to $31.11/bbl Thursday on the International Petroleum Exchange. However, gas oil for February delivery lost $8 to $267.50/tonne, and the February natural gas contract fell 16.9¢ to the equivalent of $5.39/Mcf on IPE.
The average price for OPEC's basket of seven benchmark crudes slipped by 3¢ to $30.71/bbl Thursday.
Contact Sam Fletcher at [email protected]
