Sam Fletcher
Senior Writer
HOUSTON, Sept. 29 -- The front-month crude contract temporarily touched $64/bbl Sept. 28 on the New York market but closed lower as traders speculated whether the Organization of the Petroleum Exporting Countries would cut production to buoy prices.
Reports from Nigeria of possible OPEC action sparked a rally until rumors were dispelled by OPEC officials. "We believe the commotion could be an attempt to 'talk up the markets' in the heat of considerable plunges in crude prices, and if any OPEC producer were to reduce supply, it would likely be countries that are currently producing above their quota (Saudi Arabia and other Persian Gulf producers), as opposed to Nigeria, where output has declined by 800,000 b/d in the last few months," said analysts in the Houston office of Raymond James & Associates Inc.
Meanwhile, the latest government report on US gas storage "reflects the start of some 'line pack' issues [gas occupying pressurized sections of the pipeline network] along with perhaps some constrained wellhead output concurrent with the pipeline pressure builds and, in our opinion, is not the result of any sudden sharp uptick in demand due to the drop in natural gas prices," said Robert S. Morris, Banc of America Securities LLC, New York.
The US Energy Information Administration reported injection of 77 bcf of gas into US underground storage in the week ended Sept. 22 (OGJ Online, Sept. 28, 2006). US gas storage is now at nearly 3.3 tcf, up by 377 bcf from year-ago levels and 354 bcf above the 5-year average.
Raymond James analysts said, "We now anticipate. . .gas storage levels will be between 3.4-3.6 tcf at the end of October. Because this is likely to test the limits of full storage (noncoincidental storage from each region over the past 12 years has only totaled as high as approximately 3.467 tcf including salt dome additions), gas should still be extremely volatile over the course of the next 6 weeks."
So far this year, Morris said: "Nuclear power generation is up 1.2% over last year, which we estimate has reduced incremental natural gas demand by over 200 MMcfd. The average capacity utilization rate for all US nuclear power plants has averaged 91% so far this year, compared with 90% in 2005 and 92% in 2004. However, with a recent drop in nuclear power output, we estimate that full-year utilization will average 89%, nearly in line with last year, with total nuclear power generation projected to be up about 0.5% in 2006, which we estimate will reduce natural gas demand by roughly 100 MMcfd for the full year versus 2005."
In an annual report earlier this week, EIA said US gas reserves grew 6% in 2005, the largest annual increase in 35 years (OGJ Online, Sept. 28, 2006). However, Morris said a survey in May of Banc of America Securities' study group of 55 independents and 12 major integrated companies, representing 58% of total US gas reserves, showed their proven reserves (including revisions and "improved recovery") increased 12% in 2005.
Energy prices
The November contract for benchmark US light, sweet crudes closed at $62.76/bbl, down 20¢ for the day, after trading at $62.55-64/bbl Sept. 28 on the New York Mercantile Exchange. The December contract dipped by 9¢ to $63.77/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down 20¢ to $62.77/bbl. Unleaded gasoline for October delivery dropped 3.88¢ to $1.50/gal on NYMEX. Heating oil for the same month slipped by 0.03¢ to close virtually unchanged at $1.71/gal.
The new front-month November gas contract continued to fall, down by 27.7¢ to $5.39/MMbtu on NYMEX.
In London, the November IPE contract for North Sea Brent climbed 33¢ to $62.54/bbl. The volatile October natural gas contract jumped by $22.50 to $556.50/tonne.
The average price for OPEC's basket of 11 benchmark crudes escalated by $1.65 to $57.57/bbl.
Contact Sam Fletcher at [email protected].
