MARKET WATCH Unseasonably cool weather raises energy prices

Sam Fletcher
Senior Writer

HOUSTON, Oct. 3 -- Energy futures prices increased Thursday, buoyed by unseasonably cool weather conditions this week in the Midwest and Northeast US.

"Initial winter-weather forecasts have begun to hit the tape. Although not all consistent, most of the forecasts currently call for a colder-than-normal winter. Otherwise, the hurricane season remains a factor with the formation of Tropical Storm Larry adding support to natural gas prices," said Robert S. Morris, Banc of America Securities LLC, New York, in a Thursday report.

2004 gas price lowered
However, in a separate report Thursday, Banc of America Securities lowered its 2004 outlook for US composite spot natural gas prices to $4/MMbtu from $4.50/MMbtu previously, "based on the assumption that West Texas Intermediate spot oil averages close to $25/bbl next year and [US] winter temperatures match the 10-year average."

"We still believe the longer-term 'normalized' natural gas price is $3.75-4.50/MMbtu, with WTI spot oil prices at the low-to-mid $20/bbl level," said Morris. "Under almost any scenario, we still expect domestic natural gas production will drop by 2-3% in 2004, but then the next critical factor, in our opinion, is how much and at what price does the nearly 2 bcfd of current non-fuel-switching-related year-over-year backed out demand get recaptured by natural gas."

Record gas injection
The US Energy Information Administration on Thursday reported another 100 bcf of natural gas were injected into US underground storage during the week ended Sept. 26, the largest injection ever recorded for that comparable period. It matched the previous week's injection of 100 bcf, also a record for that period, and marked "the third consecutive triple-digit injection," said Ronald J. Barone, UBS Warburg LLC, New York.

The surge in US gas injection is the result of "the continuation of lackluster national weather-driven demand, a 2% decrease in US electric output, and ongoing 'inject now-sell forward' arbitrage incentives," Barone said. "Natural gas spot prices re-established new 2003 lows last week [down 6¢ to $4.34/Mcf for the week] as the cash market continued to drift under well-entrenched shoulder month fundamentals," he said.

The latest injection figure is up from 48 bcf during the same period in 2002 when gas injections were impacted by Hurricane Isidore, which caused some 25 bcf of US gas production to be shut in at that time.

US natural gas storage now totals nearly 2.7 tcf vs. a little more than 3 tcf at this time last year. The current inventory is 55 bcf below the 5-year average for this period.

Energy prices
The November contract for benchmark US light, sweet crudes gained 45¢ to $29.84/bbl Thursday on the New York Mercantile Exchange as traders considered the possibility of a strike that could curb Nigeria's oil production. The December position advanced by 40¢ to $29.57/bbl. Unleaded gasoline for November delivery jumped by 1.54¢ to 82.05¢/gal. Heating oil for the same month was up 0.98¢ to 80.83¢/gal.

The November natural gas contract inched up by 0.9¢ to $4.69/Mcf Thursday on NYMEX. Prices during that session were "pressured early by a softer cash market and a bearish weekly storage report but [were] propped later by a rising crude oil market and some late short-covering [traders making purchases to cover open sales contracts], said analysts Friday at Enerfax Daily.

"Traders said Tropical Storm Larry in the western Gulf of Mexico also had some shorts nervous ahead of the weekend. But despite cool Midwest and Northeast weather this week that stirred some early heating demand, traders said moderating forecasts for next week have tempered the bulls," they reported.

In London, the November contract for North Sea Brent oil increased by 39¢ to $28.27/bbl on the International Petroleum Exchange. The November natural gas contract was up by 2.6¢ to the equivalent of $4.16/Mcf on IPE.

The average price for the Organization of Petroleum Exporting Countries' basket of seven benchmark crudes gained 52¢ to $27.60/bbl Thursday.

Contact Sam Fletcher at [email protected]