MARKET WATCH: Gas, oil prices fall as demand slows

Forecasts of mild weather caused natural gas futures to fall as low as $8/MMbtu in intraday trading Aug. 14, testing that psychological level despite a slightly bullish report on US inventory.

Sam Fletcher
Senior Writer

HOUSTON, Aug. 15 -- Forecasts of mild weather caused natural gas futures to fall as low as $8/MMbtu in intraday trading Aug. 14, testing that psychological level despite a slightly bullish report on US inventory.

Meanwhile, analysts in the Houston office of Raymond James & Associates Inc. said, "Oil had another day in the red, falling $1/bbl, and continues to trade lower this morning. Commodities continue to be hurt by the strengthening dollar over the past month, with oil having fallen 23% since its July 11 record high."

The Energy Information Association reported Aug. 14 the injection of 50 bcf of gas into US underground storage during the week ended Aug. 8. That put the amount of working gas in storage at 2.6 tcf, down 330 bcf from a year ago at that same period and just 6 bcf below the 5-year average (OGJ Online, Aug. 14, 2008). Analysts at Pritchard Capital Partners LLC, New Orleans, said, "The front-month contract was trading at $8.485/MMbtu just prior to the report and at $8.29/MMbtu just a few minutes later."

They said, "The weather forecast over the next few weeks is highly supportive for the year-on-year natural gas storage deficit to continue to narrow, and the pace at which the deficit narrows should accelerate in the coming weeks. Last August was exceptionally warm for the US on a population-weighted basis, with total US cooling degree days averaging 26% warmer than normal. This led to total August 2007 storage injections of only 124 bcf, well below the 5-year average August injection of 237 bcf."

Crude futures prices fell Aug. 14 following reports the 15-nation eurozone economy shrank 0.2% in the second quarter, "the first contraction since the creation of the single European currency in 1999," Pritchard Capital analysts said. Crude prices had rallied in the prior trading session after EIA reported US gasoline reserves had fallen 6.4 million bbl (OGJ Online, Aug. 13, 2008). "Gasoline stocks are closely watched at this time of year as American motorists hit the highways for their summer vacations, typically pushing up demand for gasoline," the analysts said.

Olivier Jakob at Petromatrix, Zug, Switzerland, said, "West Texas Intermediate is for now following the same patterns around $112/bbl than it did around $122/bbl. The reaction to the [EIA] gasoline draws proved again to be short lived, and WTI is heading back to a trend of testing the previous lows." Furthermore, he said, "Other commodity markets are showing strong losses during overnight trading, and we would expect the dollar trade to be the main market maker today.

In other news, weather forecasters and operators of oil and gas operations along the Gulf Coast were tracking a low-pressure area associated with a tropical wave near the Virgin Islands that has the potential to develop into a tropical depression or tropical storm.

Energy prices
The September contract for benchmark US light, sweet crudes traded as low as $112.59/bbl Aug. 14 before closing at $115.01/bbl, down 99¢ for the day on the New York Mercantile Exchange. The October contract lost 96¢ to $115.03/bbl. On the US spot market, WTI at Cushing, Okla., was down $1 to $115/bbl. Heating oil for September retreated 3.26¢ to $3.10/gal on NYMEX. The September contract for reformulated blend stock for oxygenate blending (RBOB) declined 2.03¢ to $2.91/gal on NYMEX.

The September natural gas contract dropped 32¢ to $8.14/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., gained 11¢ to $8.17/MMbtu.

In London, the expiring September IPE contract for North Sea Brent crude lost 83¢ to $112.64/bbl. Gas oil for September was down $2.75 to $1,016.25/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 13 reference crudes was not avail Aug. 15 through the group's Vienna office.

Contact Sam Fletcher at samf@ogjonline.com.

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