MARKET WATCHStorage increase lowers natural gas price

Feb. 10, 2006
Energy prices were mixed Feb. 9 as natural gas continued its plunge to the lowest levels in the New York market since late February 2005.

Sam Fletcher
Senior Writer

HOUSTON, Feb. 10 – Energy prices were mixed Feb. 9 as natural gas continued its plunge to the lowest levels in the New York market since late February 2005.

Analysts at Enerfax Daily blamed a "very bearish" gas storage report for undermining prices "despite bullish forecasts for a severe winter storm this weekend for the East Coast." The US Energy Information Administration reported the withdrawal of 38 bcf of natural gas from US underground storage in the week ended Feb. 3 vs. withdrawals of 88 bcf the previous week and 176 bcf during the same period last year. Storage now stands at 2.4 tcf of natural gas, up by 437 bcf from year-ago levels and 649 bcf above the 5-year average (OGJ Online, Feb. 9, 2006).

In its monthly Oil Market Report released Feb. 10, the Paris-based International Energy Agency reduced its 2006 global demand growth forecast by 60,000 b/d to 1.78 million b/d, with lower North American and Middle Eastern growth partially offset by increases in Europe and Asia.

In an analysis of the IEA report, Jacques Rousseau at Friedman, Billings, Ramsey & Co. Inc., Arlington, Va., said, "Overall, demand growth is expected to remain very strong at 2.1% (vs. a 1.7% historical 5-year average), primarily due to strong Chinese (5.8%) and US (1.7%) demand growth."

IEA raised its supply growth forecast for producers outside of the Organization of Petroleum Exporting Countries by 20,000 b/d to 1.3 million b/d.

"The Former Soviet Union, Africa, and North and Latin America are expected to supply most of the growth and, in our view, may be at risk, given normal operational risk and the current instability in Nigeria, Latin America, etc. The 5-year historical average for non-OPEC supply growth is 850,000 b/d," Rousseau said. The agency maintained its 2006 "call on OPEC," the amount of crude oil needed to balance global supply and demand, at 28.6 million b/d.

"The IEA attributes the increase in crude oil prices this year more to weather and logistical-related supply losses (Russia, Australia, Iraq) than geopolitical issues (Iran and Nigeria)," Rousseau said. "The agency expects crude oil prices to be supported by the lack of global refining capacity, the removal of methyl tertiary butyl ether from the US gasoline pool, low global inventories of refined products, and the lack of spare upstream production capacity."

Energy prices
The March contract for benchmark US light, sweet crudes gained 7¢ to $62.62/bbl Feb.9 on the New York Mercantile Exchange. The April position advanced by 6¢ to $63.59/bbl. The spot price of West Texas Intermediate crude at Cushing, Okla., also gained 7¢ to $62.63/bbl. However, gasoline for March delivery dropped 3.38¢ to $1.51/gal on NYMEX. Heating oil for the same month dipped by 0.09¢ to $1.66/gal.

The March natural gas contract plunged as low as $7.30/MMbtu in intraday trading on NYMEX before closing at $7.48/MMbtu, down by 25.6¢ for the day.

In London, the March contract for North Sea Brent declined by 31¢ to $60.75/bbl on the International Petroleum Exchange. Gas oil for February delivery gained $1.50 to $526.25/tonne.

The average price for OPEC's basket of eleven benchmark crudes lost 21¢ to $57.17/bbl on Feb. 9.

Contact Sam Fletcher at [email protected].