Sam Fletcher
Senior Writer
HOUSTON, Feb. 2 -- Energy futures prices fell in late trading Feb. 1 on the New York market—but not before both crude and natural gas peaked at their highest price levels in recent weeks.
The March natural gas contract was trading as high as $9.83/MMbtu on the New York Mercantile Exchange before reports reached traders that private forecasters were changing earlier forecasts of colder US weather. "That spurred a steep slide first on natural gas and then on heating oil futures," said analysts at Enerfax Daily. As a result, the March gas contract closed at $8.72/MMbtu, down by 59.3¢ for the day.
Meanwhile, the National Weather Service's 2-week outlook is for below-normal temperatures in the eastern two thirds of the US. "Northeast temperatures are expected to remain above normal this week then cool to below normal next week with highs dropping into the 20s and 30s," Enerfax analysts said. So far this winter, US temperatures have been 8.5% above the 10-year average.
Energy inventories
The Energy Information Administration reported Feb. 2 the withdrawal of 88 bcf of natural gas from US underground storage during the week ended Jan. 27. That compares with withdrawals of 81 bcf the previous week and 188 bcf during the same period last year. US gas storage now exceeds 2.4 tcf, which is 296 bcf more than year-ago levels and 529 bcf above the 5-year average.
The 2005 average cost of natural gas in storage was $10.89/MMbtu, up 52% from 2004 storage costs, said Ziff Energy Group, Calgary. "The value of gas injected represents 83% of the total value of gas in storage, the carrying cost is 11%, and the service fee represents 6%," said Ziff Energy analysts in a new report on the value of gas storage in North America. "The cost of storage services can significantly influence what customers pay for gas, both at the wellhead and at the city gate." The report includes an assessment of gas storage cost vs. winter-summer gas price differentials, revenues, and costs for gas storage operators, along with a technical review on gas storage withdrawals and injections for seven North American regions.
"The unusually high natural gas cost provides challenges for new gas storage developers as the cost of base gas is very significant in today's environment," said Ziff Energy. "The gas industry is willing to invest in gas storage because it provides considerable value in terms of increased efficiency, greater reliability of service, and facilitates market growth."
EIA earlier reported commercial US inventories of crude increased by 1.9 million bbl to 321 million bbl in the week ended Jan. 27. US gasoline stocks jumped by 4.2 million bbl to 219 million bbl in the same period, while distillate fuel inventories dipped by 200,000 bbl to 136.3 million bbl, with an increase in heating oil offset by a larger decline in diesel fuel.
US imports of crude increased by 339,000 b/d to 9.6 million b/d in that same week. The input of crude into US refineries was up by 42,000 b/d to 14.7 million b/d with refineries operating at 87% of capacity.
"Get ready for more [refinery] downtime and lower production," warned Jacques Rousseau at Friedman, Billings, Ramsey & Co. Inc., Arlington, Va. "Over the past several weeks, we have been predicting above-average levels of industry downtime during the first half of 2006 due to the deferral of normal maintenance operations after last year's hurricanes and the completion of ultralow-sulfur diesel upgrades."
Bill Kleese, new chief executive officer of Valero Energy Corp., San Antonio, said recently he expects an average of 6% of total US distillation capacity to be down through April.
"Using Valero's forecast and a 4.3% 3-year historical average for this period, we estimate an incremental supply loss of about 260,000 b/d over this 4-month period," said Rousseau. "Moreover, with much of the turnaround work expected to focus on the refineries' cat cracking units, a disproportionate amount of the production loss will likely be gasoline, reducing inventories (currently at historically average levels) ahead of the summer driving season."
Energy prices
The March contract for benchmark US light, sweet crudes topped out at $69/bbl in intraday trading Feb. 1 on NYMEX before closing at $66.56/bbl, down by $1.36 for the day. The April contract lost $1.32 to $67.42/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down by $1.36 to $66.57/bbl. Gasoline for March delivery dropped 7.63¢ to $1.73/gal on NYMEX. Heating oil for the same month was down by 2.39¢ to $1.82/gal.
In London, the March contract for North Sea Brent crude climbed as high as $67.24/bbl during the Feb. 1 session on the International Petroleum Exchange but closed at $65.13/bbl, down by 96¢ for the day. Gas oil for February lost $2.50 to $558/tonne.
The average price for the Organization of Petroleum Exporting Countries' basket of 11 benchmark crudes gained 37¢ to $60.77/bbl Feb. 1.
Contact Sam Fletcher at [email protected].
