MARKET WATCHTropical storm pushes up energy prices
Sam Fletcher
Senior Writer
HOUSTON, Aug. 3 -- Natural gas futures rebounded and crude prices continued to climb Aug. 2 as Tropical Storm Chris approached the Gulf of Mexico and summer temperatures soared throughout the Lower 48 states.
"August has usually marked the strongest storms of the hurricane season, and the markets may well have begun focusing its attention on the potential fallout," said analysts in the Houston office of Raymond James & Associates Inc.
However, TS Chris was reported Aug. 3 to be rapidly weakening as dry air and a strong upper-level wind shear ripped the storm apart, producing rain showers over Puerto Rico and the Virgin Islands.
TS Chris was the first storm of the 2006 hurricane season to threaten the gulf. It was in late August of 2005 that Hurricane Katrina ripped through the central gulf, followed in September by Hurricane Rita. Those two storms damaged several offshore platforms and pipelines and flooded many refineries and other oil and gas facilities along the Gulf Coast. Oil and gas operations in the gulf still have not fully recovered from those storms.
Meanwhile, political conflicts in the Middle East kept upward pressure on oil prices. "We now believe that various international supply disruptions (especially in Iraq and Nigeria), coupled with escalating geopolitical risk (especially involving Iran and the Israel-Palestine-Lebanon conflict), are likely to keep oil prices at notably elevated levels at least through 2007," Raymond James analysts said.
Raymond James said: "Our data suggest that the Organization of Petroleum Exporting Countries' production has fallen by nearly 1 million b/d over the past several months. The past week saw [Royal Dutch] Shell [PLC] halting nearly 180,000 b/d of crude exports from Nigeria because of pipeline disruptions, further tightening the crude oil market. Overall, because of this 'de facto' OPEC production cut and various other disruptions, the oil market now appears substantially more balanced than it did just a few months ago. Accordingly, we feel that our 2006 forecast of $66.25/bbl and our 2007 forecast of $70/bbl may prove conservative."
The analysts said: "The oil markets have entered a new paradigm where minimal excess OPEC production capacity will likely lead to increased volatility, along with generally higher average prices, for an extended period of time. In our view, there has been a step change in oil prices from the mid-$20s/bbl to closer to $50-plus/bbl, as the market has incorporated a scarcity value premium into prices. The risk of a limited buffer of excess capacity is further heightened by the risk of potential supply disruptions."
Energy prices
The September contract for benchmark US sweet, light crudes briefly topped $76/bbl on Aug. 2 before closing at $75.81/bbl, up by 90¢ for the day, the highest finish for a front-month contract since mid-July on the New York Mercantile Exchange. The October contract gained 72¢ to $76.90/bbl.
On the US spot market, West Texas Intermediate at Cushing, Okla., was up by 90¢ to $75.82/bbl. Gasoline for September delivery jumped by 6.15¢ to $2.34/gal on NYMEX. Heating oil for the same month increased by 4.9¢ to $2.13/gal.
The September natural gas contract traded at $7.53-8.55/MMbtu on NYMEX before closing at $7.80/MMbtu, up by 22.5¢ for the day. The US Energy Information Administration reported Aug. 3 the injection of 19 bcf of gas into US underground storage in the week ended July 28. That followed the withdrawal of 7 bcf the previous week, unprecedented for that time of year, compared with the injection of 37 bcf during the same period a year ago. US gas storage is now nearly 2.78 tcf, up by 360 bcf from year-ago levels and 447 bcf above the 5-year average.
In London, the September IPE contract for North Sea Brent crude gained $1 to $76.89/bbl. Gas oil for August advanced by $11.25 to $655.75/tonne.
The average price for OPEC's basket of 11 benchmark crudes advanced by $1.23 to $71.20/bbl.
Contact Sam Fletcher at [email protected].