MARKET WATCHOil futures price declines in London market

Energy futures prices declined Monday on the International Petroleum Exchange in London, while the New York Mercantile Exchange was closed for the Labor Day holiday.

Sept. 2, 2003

3 min read

Sam Fletcher
Senior Writer

HOUSTON, Sept. 2 -- Energy futures prices declined Monday on the International Petroleum Exchange in London, while the New York Mercantile Exchange was closed for the Labor Day holiday.

The October contract for North Sea Brent oil lost 26¢ to $29.23/bbl Monday on IPE, while the October natural gas contract slipped by 2¢ to the equivalent of $3.10/Mcf in that market.

The average price for the Organization of Petroleum Exporting Countries' basket of seven benchmark crudes was down by 28¢ to $28.62/bbl Monday, still above the group's target of $22-28/bbl.

On Friday, the expiring September contract for gasoline jumped by 4.16¢ to $1.093/gal in an abbreviated trading session on NYMEX, after falling earlier in the week from a 5-month high of $1.12/gal on Aug. 25. Gasoline for October delivery gained 1.01¢ to 92.82¢/gal Friday, while September heating oil increased by 0.99¢ to 81.87¢/gal.

The October contract for benchmark US light, sweet crudes gained 7¢ to $31.57/bbl Friday on NYMEX, garnering some support from continued civil unrest in Nigeria, while the October natural gas contract plummeted by 21¢ to $4.73/Mcf.

Natural gas outlook
The NYMEX natural gas futures market was hit by a wave of selling early Friday ahead of the Labor Day weekend, with falling prices touching off technical triggers for additional sales.

"The holiday weekend keeps a lid on (natural gas) demand for this week, and also mild weather forecasts provide few prospects of increasing demand, with highs expected in the mid-70 degrees this week in New York and Chicago," said analysts Tuesday at Enerfax Daily.

They're projecting that the US Energy Information Administration on Wednesday will report injections of 70-80 bcf of natural gas into US underground storage during the last week of August. Robert S. Morris at Banc of America Securities LLC, New York, expects a slightly larger injection of 72-82 bcf, which "should increase" US gas storage to nearly 2.4 tcf. That still would be 385 bcf less than last year at the same period and roughly 168 bcf below the 5-year average.

However, J. Marshall Adkins, in the Houston offices of Raymond James & Associates Inc., St. Petersburg, Fla., said Tuesday there is "good reason to believe that we may be in for a period of higher weekly injections" in excess of 90 bcf during September. "If we follow normal seasonal trends, we are due to see sharply rising injections over the coming months, until cooler winter weather begins to show up at some point in October," he said.

If that happens, said Adkins, "There is the potential for psychologically driven, near-term weakness in natural gas prices, as well as energy stocks." He said natural gas "could easily fall back into the mid-$4/Mcf range (or potentially lower), which would likely cause energy stock prices to decline back to their recent lows."

Even if weekly natural gas injection rates increase to more than 90 million/Mcf, Adkins doesn't foresee an "over-fill" of US storage by the Sept. 1 start of winter demand. "It would take monumental injections in both September and October to reach 'full' (i.e. 3.2 tcf) storage," he said. "In other words, over-full gas storage and a subsequent gas price collapse aren't likely to happen."

Contact Sam Fletcher at [email protected]