MARKET WATCHNatural gas futures price hits 15-month low

Sam Fletcher
Senior Writer

HOUSTON, May 19 -- The front-month futures contract for natural gas fell May 18 to the lowest price in 15 months on the New York market as US storage continued to surge.

The June natural gas contract dipped just below $6/MMbtu on the New York Mercantile exchange, closing at $5.997/MMbtu, down 13.2¢ for the day, after trading at $5.86-6.14/MMbtu during that session.

The Energy Information Administration reported the injection of 91 bcf of natural gas into US underground storage in the week ended May 12. US gas storage now stands at 2.08 tcf, the highest level ever for this time of year (OGJ Online, May 18, 2006).

"The recent pattern of injections suggests large builds through the remainder of May and June," said analysts at Enerfax Daily. That "virtually guarantees" a "massive storage overflow condition" before the end of the injection season in the fall, "forcing steep discounts in the cash market," the analysts said.

"While gas in storage at the beginning of the heating season has never exceeded 3.4 tcf, there is much more room for excess volumes, up to 4 tcf," said Enerfax analysts. "However, given the steep contango of futures into the coming winter of about $5/MMbtu, an owner of storage could buy spot gas and sell January futures, locking in an annualized return of well over 100%. The fact that this arbitrage opportunity hasn't been exploited more is a sign of how limited storage capacity is outside of what has already been allocated to utilities."

Another fierce hurricane season this summer that disrupts offshore gas production in the Gulf of Mexico, as happened in 2005, could greatly alter the market, of course.

Crude rebounds
The near-month NYMEX crude contract bounced back above $69/bbl on May 18 after tumbling in the previous session to its lowest price since early April.

The June contract for benchmark US light, sweet crudes gained 76¢ to $69.45/bbl in that market, while the July contract increased by 72¢ to $70.14/bbl. Gasoline for June delivery escalated 4¢ to $2.02/gal. Heating oil for the same month increased by 3.01¢ to $1.95/gal.

In London, the July IPE contract for North Sea Brent crude gained 63¢ to $69.67/bbl. Gas oil for June was unchanged at $612/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 11 benchmark crudes lost 80¢ to $62.95/bbl on May 18.

Contact Sam Fletcher at [email protected].