MARKET WATCHNatural gas prices up on storage withdrawal
By OGJ editors
HOUSTON, July 28 -- Crude oil prices rose July 27 upon political events worldwide while natural gas prices increased following US government reports of withdrawal from gas storage—the first summer withdrawal on record.
The US Energy Information Administration reported a 7 bcf withdrawal for the week ending July 21 (OGJ Online, July 27, 2006). Before the report was released July 27, analysts had projected an injection of 24 bcf.
Gas prices reached a high of $7.25/MMbtu on the New York Mercantile Exchange before settling 15.5¢ higher at $7.042/MMbtu. The settle price maintained a 5-week high as the futures contract for August delivery expired.
Reaction
UBS Securities LLC analyst Ronald Barone said the gas storage withdrawal stemmed from hot weather coupled with increased electric power usage, which stemmed in part from some nuclear plant outages.
Barone citied a 25% decrease in average daily nuclear outages to 1,291 Mw for the week compared with 1,723 Mw in the previous week.
The 7 bcf withdrawal compared with a 59 bcf injection in the prior week, a 38 bcf injection last year, and the 5-year average 65 bcf injection.
Analysts in the Houston office of Raymond James & Associates Inc. cited hot weather, low gas prices, and price-induced fuel switching as prompting the gas withdrawal.
RJA analysts noted some traders have expressed concern that gas inventory levels will, for the summer, end near 3.9 tcf, which would be 500 bcf more than the highest storage for that period.
"However, if we experience bullish gas injection levels (or in this week's case, bullish withdrawals) over the upcoming months, it is likely that we will not surpass or even reach 3,500 bcf this summer," RJA said.
Energy prices
The NYMEX September contract for benchmark US sweet, light crudes increased by 60¢ to $74.54/bbl, while the October contract gained 71¢ to $75.70/bbl.
On the US spot market, West Texas Intermediate crude at Cushing, Okla., was up by 60¢ to $74.55/bbl. Heating oil for August delivery increased by 2¢ to $1.98/gal on NYMEX. Gasoline for the same month fell by 2¢ to $2.35/gal.
In London, the September IPE contract for North Sea Brent crude climbed by $1.01 to $75.01/bbl. Gas oil for August rose by $7 to $638.25/tonne.
The average price for the Organization of Petroleum Exporting Countries' basket of 11 benchmark crudes gained 80¢ to $69.07/bbl.