Market watch: Oil, gas futures prices crater following downgraded storm

By OGJ editors

HOUSTON, Oct. 4 -- Oil and natural gas futures prices slumped Thursday on the New York Mercantile Exchange just as Hurricane Lili was making landfall over Louisiana. The storm—which packed winds topping 100 mph—was later downgraded to a tropical storm as it headed inland.

After rallying above $4/Mcf this week, the November natural gas futures contract plunged 43.6¢ Thursday to settle at $3.72/Mcf Thursday. "The November (natural gas) contract is now only slightly above October's $3.686(/Mcf). . .expiration, but still almost 40% above lows seen in August," analysts at Enerfax Daily reported Friday. "Look for a short-covering rally (Friday) after (Thursday's) major sell-off," Enerfax said, adding that "the market may test the $3.50s early next week."

Which direction the natural gas market will head next will depend largely on the assessment of Lili's damage, Enerfax said. "If severe infrastructure damage is found in the Gulf of Mexico (Friday), the market will jump back above $4(/Mcf) in a hurry," it said.

Oil markets, meanwhile, were driven down largely due to a statement issued from Russia that it opposed a proposed United Nations Security Council resolution against Iraq. Many traders interpreted this latest development to mean that the threat of military action against Iraq wasn't as imminent as once thought.

The November contract for benchmark US sweet, light crudes took a nose-dive as well Thursday, dropping 73¢ to reach $29.76/bbl on NYMEX, while the December contract was down 64¢ to $29.64. Unleaded gasoline for November delivery fell 2.25¢ to 80.25¢/gal Thursday, while heating oil for the same month's delivery lost 1.92¢ to settle at 79.43¢/gal.

In London, the futures price for Brent crude fell 56¢ reaching $28.26/bbl on the International Petroleum Exchange. The decline was driven by news that France and China, following Russia's lead, also issued statements that they would oppose the new UN resolution on Iraq. The November natural gas contract, meanwhile, was up 4¢ to the equivalent of $3.22/Mcf on IPE.

The average price for OPEC's basket of seven benchmark crudes held steady at $28.51/bbl on Thursday.