MARKET WATCHNear-record gas withdrawal fails to boost markets

Oil and natural gas prices dropped temporarily to 2-week lows before battling back to near-starting positions Feb. 15 on the New York market, despite the second-largest withdrawal ever of gas from US storage.

Sam Fletcher
Senior Writer

HOUSTON, Feb. 16 -- Oil and natural gas prices dropped temporarily to 2-week lows before battling back to near-starting positions Feb. 15 on the New York market, despite the second-largest withdrawal ever of gas from US storage.

The US Energy Information Administration reported the withdrawal of 259 bcf of gas from US underground storage in the week ended Feb. 9 (OGJ Online, Feb. 15, 2007). That was the biggest weekly withdrawal so far this winter, larger than the consensus among Wall Street analysts, and second only to the all-time high of 260 bcf withdrawn in the week ended Jan. 17, 1997.

The withdrawal of 179 bcf of gas last week from storage facilities in the east region of the US also was an all-time high for that area, said Robert S. Morris, Banc of America Securities LLC, New York. "We believe the record withdrawal in the east region was impacted by fuel switching and infrastructure constraints," he said.

US gas storage now stands at nearly 2.1 tcf, which is 193 bcf below year-ago levels but 268 bcf above the 5-year average. "Assuming normal weather to the end of the winter season, it seems that we are heading to an ending storage level of 1.3 tcf [in March], which falls inline with the historic average. Thus, the effects of the warmer-than-normal weather in 2006 and its resulting natural gas surplus would finally dissipate," said analysts in the Houston office of Raymond James & Associates Inc.

Based on preliminary estimates, imports of LNG into the US will likely average nearly 1.7 bcfd through January-February, "which is essentially in-line with our prior forecast, and compares with just over 1.3 bcfd, on average, during the first 2 months of last year," Morris said. He noted that gas prices in the US "have been nearly $2/MMbtu higher than UK prices year-to-date vs. more than $2/MMbtu lower during the same period last year." As a result, he said imports of LNG should increase to 2.5 bcfd, or 4.5% of total estimated US gas supply. That would be "a nearly 50% uptick vs. last year, which also largely reflects increased liquefaction capacity around the globe," Morris said.

Energy prices
The March contract for benchmark US light, sweet crudes traded at $56.62-58.51/bbl before closing at $57.99/bbl, down 1¢ for the day on the New York Mercantile Exchange. That intraday price volatility was due in large part to traders covering market positions ahead of a long weekend, since floor trading at NYMEX will be closed Feb. 19 for the Presidents Day holiday in the US. Moreover, the March crude contract is scheduled to expire Feb. 20.

The April crude contract dipped by 6¢ to $50.51/bbl Feb. 15 on NYMEX. On the US spot market, West Texas Intermediate at Cushing, Okla., remained unchanged at $58/bbl. Heating oil for March delivery lost 1.12¢ to $1.63/gal on NYMEX. The March contract for reformulated blend stock for oxygenate blending (RBOB) dropped 1.9¢ to $1.60/gal.

"Gasoline has not been able to maintain its leadership position and the product cracks (hence also the 3-2-1 refinery crack) have lost value; but the contango on crude and products continues to narrow," said Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland. "In the broader picture, the dollar index continues on a weak trend."

The March natural gas contract traded at $7.05-7.38/MMbtu before closing at $7.29/MMbtu, up by 5.1¢ for the day on NYMEX. "Failure of the market to drop past the 2-week low of $7.05 earlier in the session may have spurred buying," said analysts at Enerfax Daily. On the US spot market, natural gas at Henry Hub, La., was unchanged at $8.86/MMbtu.

In London, the April IPE contract for North Sea Brent crude gained 17¢ to $57.60/bbl. The March gas oil contract, however, lost $4.25 to $501.25/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of benchmark crudes dropped 90¢ to $52.80/bbl Feb. 15.

Contact Sam Fletcher at samf@ogjonline.com.

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