MARKET WATCHHot weather boosts US natural gas futures prices

Sam Fletcher
Senior Writer

HOUSTON, July 8 -- Hot weekend weather in the Northeast and Midwest US helped lift natural gas futures prices Monday on the New York Mercantile Exchange.

Traders also voiced concerns that a strong tropical movement currently in the Caribbean near Barbados could breed another tropical storm or hurricane that might threaten offshore production facilities in the gas-prone Gulf of Mexico.

The August natural gas contract increased by 15.5¢ to $5.38/Mcf Monday on NYMEX, tempered by a lagging spot cash market for natural gas and forecasts of milder weather later this week, said analysts Tuesday at Enerfax Daily.

Meanwhile, the sharp drop in natural gas prices last week to a more competitive level with alternative distillates could trigger some fuel switching back to gas, said Robert S. Morris at Banc of America Securities LLC, New York, in his weekly report on exploration and production. "In fact, given the recent drop in natural gas prices, we estimate that up to 1-1.5 bcfd of demand could be switched back to natural gas, and this could be a factor in this week's injection (of gas into US underground storage)," he said.

In a separate report also issued Monday, Morris noted that the "true backed out" US demand for gas "appears to be 5-6 bcfd." However, he said, "We still believe that the outlook for natural gas prices is quite solid, while we are projecting a beginning-of-November storage level of closer to 3 tcf." That's the historic "comfort level" for natural gas storage going into the peak winter demand season.

Oil futures prices
The August contract for benchmark US sweet, light crudes dropped 29¢ to $30.13/bbl Monday on NYMEX, while the September position fell 30¢ to $29.72/bbl. Heating oil for August delivery was down 0.6¢ to 77.48¢/gal. But unleaded gasoline for the same month gained 0.23¢ to 88.63¢/gal.

In London, the August contract for North Sea Brent oil gained 19¢ to $27.82/bbl Monday on the International Petroleum Exchange. However, the August natural gas contract dipped by 2.7¢ to the equivalent of $2.84/Mcf on IPE.

Analysts said oil markets no longer appear "overly nervous" about the general strike in Nigeria that helped spur a modest price increase last week. On Sunday, workers rejected a government offer to reduce gasoline prices in that country. A 50% increase in Nigerian gasoline prices 2 weeks ago triggered the general strike that has not yet interfered with oil exports from Nigeria.

However, Morris said, "This remains a possibility and will likely continue to buoy oil prices this week."

The average price for the Organization of Petroleum Exporting Countries' basket of seven benchmark crudes lost 15¢ to $27.04/bbl Monday.

Contact Sam Fletcher at [email protected]