By OGJ editors
HOUSTON, June 11 -- Energy futures prices continued to decline in the face of faltering US demand for gasoline this summer.
Members of the Organization of Petroleum Exporting Countries apparently reached a consensus not to change current production quotas at a special meeting scheduled June 26 in Vienna (OGJ Online, June 10, 2002). But the market has already factored in that likelihood, said analysts, so the formal decision is unlikely to boost market prices.
Meanwhile, Lehman Brothers Inc., New York, recently reported both bullish and bearish indicators for the US natural gas market. Among the bullish indicators:
-- US natural gas production is falling, down about 3% during the first quarter of this year and likely to drop by 5% for the year as a whole.
-- Canadian gas production is increasing more slowly than in 2001. Canada's gas production grew 2% through April, compared with a 3.3% increase in that same period in 2001. "The Ladyfern field could decline sharply later in 2002, accelerating the drop in Canadian production growth," analysts said.
-- Oil prices remain relatively high, despite recent declines, allowing natural gas prices to rise without triggering a switch to residual oil.
On the bearish side, Lehman Brothers analysts noted:
-- US gas storage is high, with working inventories 329 bcf above 5-year averages. "So long as this overhang persists we believe that natural gas prices will be limited by residual fuel oil prices," they said.
-- Gas storage injection rates have continued strong since the traditional Apr. 1 start of the storage injection season. "Recent injection rates imply that we could end the traditional refill season with 3,400 bcf natural gas in storage," analysts said.
-- Oil prices may fall further, as the current Middle East "war premium" is defused and other political uncertainties are resolved.
Nonetheless, Lehman Brothers remain bullish about natural gas over the long term, with a "go-forward" price forecast of $3.50/MMbtu.
In a separate report, Ronald Barone, analyst with UBS Warburg LLC in New York, noted that the number of US rigs drilling for natural gas increased by 78 to an average of 690 in May, breaking a 9-month sequential string of declining rig counts.
However, he said the recent warming trend is expected to lose some steam this week as temperatures moderate in several key US regions.
The July contract for benchmark US sweet, light crudes dropped 46¢ to $24.29/bbl Monday on the New York Mercantile Exchange. The August position also was down the same amount to $24.56/bbl. Both continued to decline in after-hours electronic trading to $24.25/bbl and $24.48/bbl respectively.
Unleaded gasoline for July delivery fell 1.3¢ to 73.79¢/gal on NYMEX. Heating oil for the same month lost 0.84¢ to 62.33¢/gal. The July natural gas contract retreated 6.9¢ to $3.14/Mcf.
In London, the July contract for North Sea Brent oil was down 33¢ to $23.66/bbl on the International Petroleum Exchange. Brokers expect the price to drift below $23/bbl in that market, because of rising US inventories of both crude and petroleum products.
However, the July contract for natural gas inched up 1.8¢ to the equivalent of $1.78/Mcf on the IPE.
The average price for OPEC's basket of seven crudes lost 37¢ to $22.65/bbl Monday.
