Market watch: Natural gas futures price falls as traders reap storm profits

Natural gas futures prices fell Tuesday on the New York Mercantile Exchange, even as offshore gas and oil production was being shut in ahead of Tropical Storm Isidore.

Sam Fletcher
OGJ Senior Writer

HOUSTON, Sept. 25 -- Natural gas futures prices fell Tuesday on the New York Mercantile Exchange, even as offshore gas and oil production was being shut in ahead of Tropical Storm Isidore, which appeared to be on a track toward the most active area in the Gulf of Mexico.

The October contract for natural gas plunged 23.6¢ to $3.74/Mcf, wiping out Monday's gain of 22¢/Mcf on NYMEX, "as traders that bought the rumor began selling the fact of. . .Isidore heading for the central Gulf of Mexico," said analysts at Enerfax Daily. Meanwhile, the US Minerals Management Service reported that 3.2 bcfd of offshore gas production was shut in Monday and more would be shut in on Tuesday. Other sources reported Shell Exploration & Production Co. alone was shutting in production of 2.7 bcfd of gas and 675,000 b/d of oil in the gulf. MMS officials said a cumulative 14 bcfd of gas is normally produced from the gulf.

The November contract for benchmark US light, sweet crudes inched up 6¢ to $30.77/bbl Tuesday, on the strength of storms threatening activity in the gulf and a 50-page dossier released by the UK government, outlining the potential military threat posed by Iraq. The December oil position was unchanged at $30.45/bbl, however.

Heating oil for October delivery increased by 0.13¢ to 80.7¢/gal on NYMEX. But unleaded gasoline for the same month lost 1.35¢ to 82.92¢/gal, rubbing out much of a 2.86¢/gal gain from the previous session.

Following the close of trading Tuesday, the American Petroleum Institute reported US oil inventories dropped 2.2 million bbl to 289.8 million bbl last week. US distillate stocks fell 1.5 million bbl to 130.2 million bbl, but gasoline inventories jumped by 4.2 million bbl to 209 million during the same period—"the largest weekly increase in gasoline inventories since January," said Matthew Warburton at UBS Warburg LLC, New York.

In a report issued Wednesday, he said, "US crude inventories continued to tighten and. . .will further support the recent crude price strength. However, with a substantial build in gasoline inventories, product prices are likely to remain under pressure, further extending the weak refining margin environment in the US."

The falloff in crude inventories was due primarily to draws in Petroleum Administration for Defense Districts 1 (East Coast) and 5 (West Coast), said Warburton. "With PADD 1 refinery runs falling 80 million b/d to their lowest level since March and overall crude imports unchanged, the draw of 1.5 million bbl could be due to transfers to PADD 2 (the upper Midwest) where inventories increased modestly from the 10-year lows reached (in the previous reporting period)," he said. "Even with the return of both the Alpine and Prudhoe Bay production (in Alaska) after the recent well explosion, PADD 5 inventories hit 10-year lows last week."

The draw down of distillates was concentrated in PADD 3 on the Gulf Coast "where volumes are being moved to the Midcontinent to take advantage of firm prices due to strong agricultural demand and maintenance at" Citgo Petroleum Corp.'s 158,650 b/d Lemont, Ill., refinery, Warburton said.

In London, the November contract for North Sea Brent crude dipped 2¢ to $29.11/bbl on the International Petroleum Exchange. However, the October natural gas contract bumped up 4.1¢ to the equivalent of $2.72/Mcf on IPE.

The average price for the Organization of Petroleum Exporting Countries' basket of seven benchmark crudes increased 13¢ Tuesday to $28.41/bbl.

Contact Sam Fletcher at samf@ogjonline.com

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