MARKET WATCH: Gas prices fall as winter ends

April 4, 2008
The May natural gas futures price fell Apr. 3 as a smaller-than-expected draw left 1.25 tcf of gas in US underground storage at the end of the winter heating season.

Sam Fletcher
Senior Writer

HOUSTON, Apr. 4 -- The May natural gas futures price fell Apr. 3 as a smaller-than-expected draw left 1.25 tcf of gas in US underground storage at the end of the winter heating season.

The Energy Information Administration reported the withdrawal of 29 bcf of gas from US storage during the week ended Mar. 28, compared with a 36 bcf take the previous week and a 58 bcf injection during the same period in 2007. The gas remaining in storage as of Mar. 28 was 304 bcf less than a year ago but 6 bcf above the 5-year average.

"US temperatures last week, based on gas home customer-weighted heating degree days, were 109% colder than last year, 16% colder than the 10-year average, and 0.7% colder than the prior week. Thus, the overall winter (Nov. 1 through Mar. 31) ended up being about 4.2% colder than the 10-year average and 6.3% colder than last year," said Michael C. Schmitz, Banc of America Securities LLC, New York. The latest withdrawal of gas from storage "does not appear to reflect any significant changes in supply or demand fundamentals from recent weeks," he said.

EIA also estimated total US natural gas production in January was down 0.9% from December 2007 but increased 7.5% from January 2007. EIA revised its December 2007 production estimate up by 0.5%, "implying full-year 2007 natural gas production growth of 3.7% (or 2.7% 'organic growth' excluding, or adding back, hurricane-related shut-ins)," Schmitz said. "The 2.7% 'organic' growth for 2007 compares with our proprietary models, indicating about a 1.6% up tick. Thus, our long-held proprietary models continue to yield slightly lower growth estimates vs. the EIA's projections," he said.

"Consequently, we believe that our 2008 domestic natural gas production growth forecast of 2.8%, or 1.3 bcfd, roughly one third of which is from a full-year of output from the deepwater Gulf of Mexico Independence Hub, could prove conservative, especially given the continued success in unconventional resource plays—particularly the Barnett, Woodford, and Fayetteville shale and several plays in the Rockies, which have also benefited from the start-up of the Rockies Express Pipeline expansion," said Schmitz.

Crude futures prices declined slightly Apr. 3 in the New York market, yet were up in early electronic trading Apr. 4 prior to a report that US employment fell for the third consecutive month, with 80,000 jobs eliminated, the most in 5 years. The US Department of Labor reported the nation's unemployment rate increased to 5.1% from 4.8%, the highest level since September 2005 when employment fell after Hurricanes Katrina and Rita slammed into the central Gulf of Mexico less than 30 days apart.

Meanwhile, analysts in the Houston office of Raymond James & Associates Inc. reported, "Refinery utilization remains at seasonal lows due to a combination of low margins and longer than expected maintenance. Combined with the lackluster gasoline demand over the past few weeks, this may be a sign for moderating oil prices."

Energy prices
The May contract for benchmark US light, sweet crudes dropped $1 to $103.83/bbl on the New York Mercantile Exchange. The June contract lost $1.02 to $103.26/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down $1 to $103.84/bbl. The May contract for reformulated blend stock for oxygenate blending (RBOB) fell 4.93¢ to $2.72/gal on NYMEX. Heating oil for the same month declined 2.82¢ to $2.92/gal.

The June natural gas contract dropped 41.5¢ to $9.42/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., increased 13.5¢ to $9.70/MMbtu.

In London, the May IPE contract for North Sea Brent crude lost $1.23 to $102.52/bbl. However, gas oil for April jumped by $33 to $956.75/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 13 reference crudes escalated by $2.15 to $98.63/bbl on Apr. 3.

Contact Sam Fletcher at [email protected].