Market watch: Lingering supply-demand imbalance sours markets

Continued low summer demand, burgeoning stocks, and lingering pessimism about the recovering US economy combined Friday to push energy prices lower on NYMEX following Thursday's dip.

By OGJ editors

HOUSTON, July 29 -- Continued low summer demand, burgeoning stocks, and lingering pessimism about the recovering US economy combined Friday to push energy prices lower on the New York Mercantile Exchange following Thursday's dip.

September deliveries for US benchmark light, sweet crude on NYMEX dropped by 23¢ to $26.54/bbl, and the October contract slipped 25¢ to $26.11. Heating oil edged down 0.66¢ to 66.75¢/gal, and gasoline notched down a slight 0.3¢/gal to 82.21¢/gal.

Natural gas prices on NYMEX, however, moved up 3.4¢ to $2.94/Mcf, recovering some of Friday's loss.

The US natural gas outlook for this fall, nonetheless, continues to be bearish, followed by a bullish 2003, according to Marshall Adkins, analyst with Raymond James & Associates Inc.

With US natural gas production falling off more rapidly than expected, and the country's economy in the early stages of a recovery that would drive year-over-year consumption upward, Adkins said RJA today raised its 2003 natural gas price forecast to $4.00 from $3.75 but said that it would not happen until the current bearish trend of high supply and low demand takes its toll and reverses itself.

"While recent (exploration and production) data has confirmed that US natural gas supply is. . .down over 6% on a year-over-year basis, the weekly (US Department of Energy) gas storage data is currently suggesting that y-o-y natural gas demand (in the US) has continued to fall from even last year's depressed levels," Adkins said.

"The bad news. . .is that unless some abnormally warm weather or a hurricane shows up, gas prices could easily tank into the low $2.00 range this fall. The good news is that lower gas prices today mean even higher gas prices in 2003," he added.

"Today's anemic drilling activity levels combined with this winter's easy weather comparisons are driving the US natural gas markets rapidly toward a gas supply shortage this winter," Adkins said.

Meanwhile, futures prices for North Sea Brent crude also fell—the September contract by 23¢ to $25.03/bbl—on the International Petroleum Exchange in London. The August natural gas contract fell 12¢ to the equivalent of $1.80/Mcf on the IPE.

The average price for OPEC's basket of seven benchmark crudes moved downward Friday to $24.79 after having remained steady at $24.98/bbl Wednesday and Thursday.

More in General Interest