Sam Fletcher
Senior Writer
HOUSTON, Jan. 23 -- Predictions of cold weather in the US Northeast through the first week of February boosted intraday prices for the front-month natural gas contract to a 5-week high Jan. 22 on the New York market.
"Although late to the party, cold winter weather has finally showed up and is ready to show its wrath over the next couple of weeks. The apparent persistence of this weather has fueled natural gas prices, which have soared 20% over the last few days," said analysts in the Houston office of Raymond James & Associates Inc.
"Natural gas has been the main support to the energy complex," agreed Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland. Nonetheless, UBS Securities LLC in New York is lowering its 2007 natural gas composite spot forecast to $6.95/MMbtu from $7.60/MMbtu while maintaining its 2008 forecast of $8/MMbtu, introducing a 2009 estimate of $8/MMbtu, and reiterating its normalized forecast of $6/MMbtu.
"We are reducing our forecast primarily due to warmer-than-normal weather and its resulting impact on storage inventory levels," said Ronald J. Barone with UBS Securities LLC analyst in New York. "With roughly 49% of the heating degree days of the 2006-07 heating season over, temperatures to date have been 17.4% above normal and storage is currently sitting at 2.94 tcf, roughly 361 bcf above last year and 470 bcf above the 5-year average." Under a base-case scenario, which assumes normal weather through the rest of the winter, the UBS Energy Group estimates gas in storage at the end of the heating season will approximate 1.7 tcf, or about the same level as at the end of the 2006 heating season.
UBS Securities' long-term outlook calls for flat or modestly increasing gas deliverability in the Lower 48; declining gas imports from Canada; existing LNG facilities continuing to operate significantly below capacity with new plants not being a factor until 2009-10; and the current oil-to-gas ratio of 8:1 reverting to the middle of its 8:1-6:1 historical benchmark range.
Meanwhile, reemergence of geopolitical issues in Nigeria where rebel militias have kidnapped 26 expatriate workers helps support crude prices, said Raymond James analysts. "Nigeria is a stark example of a possible disruption to crude supplies predicated on the country's embedded political instability. This continues to be a huge disturbance to the oil market, and is yet another example that the worldwide geopolitical wild cards are not going away," they said.
In other news, US President George W. Bush is scheduled to deliver his 2007 State of the Union address the evening of Jan. 23. "If history is any indication, he will spend considerable time discussing his vision for alternative energy. We believe there is a possibility for one or more of the following concrete policy announcements: (1) support for a significant increase in the Renewable Fuels Standard for ethanol; (2) increased federal funding for research into cellulosic ethanol; and (3) a new federal solar initiative, potentially relating to net metering," Raymond James analysts said.
Energy prices
Crude prices gave back some of its previous gains Jan. 22, with the February contract for benchmark US sweet, light crudes dropping 86¢ to $51.13/bbl on the New York Mercantile Exchange. The March contract lost 82¢ to $52.58/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down 86¢ to $51.14/bbl. The February contract for reformulated blend stock for oxygenate blending (RBOB) fell by 2.26¢ to $1.38/gal on NYMEX. Heating oil for the same month dipped by 0.51¢ but was virtually unchanged at $1.51/gal.
The February natural gas contract traded as high as $7.37/MMbtu Jan. 22 on NYMEX before closing at$7.32/MMbtu, up by 43.3¢ for the day. On the US spot market, gas at Henry Hub, La, jumped by 61¢ to $7.17/MMbtu
In London, the March IPE contract for North Sea Brent crude lost 74¢ to $52.70/bbl. Gas oil for February increased by $14.75 to $490.50/tonne.
The average price for the Organization of Petroleum Exporting Countries' basket jumped by $1.43 to $49.63/bbl on Jan. 22.
Contact Sam Fletcher at [email protected].
