Market watch: Energy futures prices decline as markets adjust

By OGJ editors

HOUSTON, July 26 -- Energy futures prices slipped Thursday on the New York Mercantile Exchange, as traders adjusted the previous day's rise that was triggered by US refinery outages.

The market switched its focus back upstream amid growing indications that the Organization of Petroleum Exporting Countries will increase oil production before yearend, analysts said.

The September contract for benchmark US light, sweet crudes dropped 10¢ to $26.77/bbl while the October position remained unchanged at $26.36/bbl. Heating oil for August delivery dipped by 0.19¢ to 67.41¢/gal, and unleaded gasoline for the same month shaved off 0.09¢ to 82.24¢/gal.

The August natural gas contract fell 14¢ to $2.90/Mcf on NYMEX, giving up most of Wednesday's gain. "After edging higher last week, NYMEX (gas) futures (prices) have since weakened, weighed upon by ongoing lackluster industrial demand, yesterday's bearish storage report, and likely position unwinding from the chaos in the merchant space," Ronald Barone at UBS Warburg LLC reported Friday. Moreover, he said, "The effects of the oversupplied current environment remain evident in cash trading."

Injections of natural gas into US underground storage show no signs of slowing this summer and could reach full capacity before the winter heating season starts, putting more downward pressure on prices, he said.

"National supplies are now at 2,486 bcf vs. 2,152 bcf at this time last year and the prior 5-year average of 2,122 bcf," said Barone. "We calculate that the industry will have to inject only 21 bcf/week to get storage to the 2,800 bcf mark by Nov. 1, 41 bcf/week to get to 3,100 bcf, and 55 bcf/week to get to 3,300 bcf."

However, Robert S. Morris at Salomon Smith Barney Inc. in New York, said Monday that reports from 21 of the 40 largest publicly traded US gas producers indicate that US gas production during the second quarter dropped 0.5% sequentially and 5.1% year-over-year. "Given our longer-term outlook that North American natural gas supply (and) demand fundamentals will remain tight, interest has been revived in alternative sources to augment natural gas supply, such as liquefied natural gas (LNG)," he said.

Meanwhile, the El Paso Merchant Energy Group, a unit of El Paso Corp., earlier this month notified the North Carolina State Ports Authority that it is terminating, effective Aug. 15, its lease option on the 47-acre Radio Island, NC, site for a proposed LNG terminal. An El Paso spokesman said the company was unable to identify markets and partners for their proposed facility in the port of Morehead City, NC. The company had wanted to build an LNG terminal with a base regasification capacity of 250-350 MMcfd to supply a proposed ethanol plant and industrial customers in North Carolina. Start up of the terminal was tentatively targeted in 2006.

In London, futures prices for North Sea Brent crude steadied around $25.20/bbl after testing support at $25/bbl in quite, range-bound trading Thursday on the International Petroleum Exchange. Selling wasn't aggressive enough to punch below $25/bbl, brokers said, but eventually could drift lower without fresh news.

The September Brent contract closed at $25.26, down 7¢ for the day after trading at $25.05-25.47/bbl. The August natural gas contract inched up 0.3¢ to the equivalent of $1.94/Mcf on the IPE.

The average price for OPEC's basket of seven benchmark crudes was unchanged at $24.98/bbl Thursday.