MARKET WATCHEnergy futures prices fluctuate in holiday trading
Sam Fletcher
Senior Writer
HOUSTON, July 7 -- Energy futures prices declined Friday on London's International Petroleum Exchange, with the US market closed for the 4th of July holiday and indications of a possible end to a general strike in Nigeria.
The August contract for North Sea Brent lost 57¢ to $27.63/bbl Friday. The August natural gas contract also retreated by 2¢ to the equivalent of $2.89/Mcf.
In an abbreviated trading session Thursday on the New York Mercantile Exchange ahead of the holiday, the August contract for benchmark US light, sweet crudes closed at $30.42/bbl, up 27¢ for the day, after trading at $30.07-30.98/bbl.
The average price for the Organization of Petroleum Exporting Countries' basket of seven benchmark crudes gained 29¢ to $27.60/bbl Thursday. For the week as a whole, however, OPEC's basket price averaged $27.14/bbl, up from $26.42/bbl the previous week.
So far this year, OPEC's basket price has averaged $28.07/bbl, compared with an average of $24.36/bbl for all of 2002.
Natural gas price
The August natural gas contract gained 2.7¢ to $5.23/Mcf Thursday on NYMEX as traders moved to cover short contracts ahead of the long weekend holiday. "The market opened higher in anticipation of another triple-digit storage injection, hitting the session high of $5.36(/Mcf) about midmorning, but then it dipped back below $5.25(/Mcf) for most of the holiday-shortened session," said analysts Monday at Enerfax Daily. "While 4 days of Northeast and Midwest heat the prior week finally slowed the recent record pace of triple digit weekly storage builds, it was not by much."
The US Energy Information Administration reported Thursday that 97 bcf of natural gas was injected into US underground storage during the week of June 27, down from a record injection of 127 bcf the previous week. There is now nearly 1.7 tcf of natural gas in US storage, 624 bcf less than in the same period of 2002 and 348 bcf below the 5-year average (OGJ Online, July 3, 2003).
"We now know this summer's equilibrium price is not as high as $6(/Mcf)," said Stephen Smith, founder and president of Stephen Smith Energy Associates, Natchez, Miss., in a Monday report. "With gas prices now approaching $5 and possibly lower levels (depending on how hot this summer proves to be), gas is beginning to be competitively priced again and 'demand destruction' will continue to ease," he predicted.
"This oscillatory price behavior is typical of the normal process of searching for a new equilibrium price following a fundamental change in the underlying supply-demand balance," Smith said. "Recent events suggest that prices may not spend much time below $5[/Mcf]."
A different view
J. Marshall Adkins, an analyst in the Houston office of Raymond James & Associates, St. Petersburg, Fla., has a more bullish outlook for the US natural gas market, however. "After picking through the recent storage numbers, we remain more convinced than ever that the recent sell-off in natural gas and energy stocks is way overblown," he said Monday in a weekly report.
"Even with extremely mild weather and record $6.50/Mcf spring gas prices, the US is still not killing enough gas demand to reach a full 3 tcf of natural gas storage by the end of October," said Adkins. "More importantly, we expect storage injections will fall sharply over the next 3-4 weeks as the combination of warmer-than-normal temperatures and reduced fuel switching drive natural gas demand sharply higher. In other words, we still think that the gas price required to refill storage will be north of $6/Mcf."
Adkins noted, "Over the past month, US natural gas prices have fallen over 20% from a high of over $6.50/Mcf to a low of just above $5/Mcf." Moreover, he said large injections of gas into US storage during the past 5 weeks suggest that US gas supply vs. demand has improved "by about 3.6 bcfd" from year-ago levels.
However, Adkins said about a third of that apparent improvement "is attributable solely to the much milder temperatures experienced this year over last year. Specifically, we believe that mild temperatures account for approximately 1.1 bcfd of this recent 3.6 bcfd supply-demand shift." He added that gas demand destruction, amounting to "at least 4 bcfd," was "partially offset by an estimated supply decline of about 1.5 bcfd. That means that if we adjust for weather, the total (annual) supply-demand change indicated by the past 5 weeks of storage data (in a $6.50/Mcf gas world) was only 2.5 bcfd."
Adkins expects a sharp drop in US gas injections by mid-July once "falling natural gas prices and rising oil prices have erased much of the incentives to switch to distillate fuels. He concluded, "Just as the larger-than-expected natural gas injections drove gas prices down, we obviously expect (reduced) injections over the next several weeks to drive gas prices right back up."
Contact Sam Fletcher at [email protected]