MARKET WATCHOil prices surge, natural gas price falls

Sam Fletcher
Senior Writer

HOUSTON, Sept. 2 -- The natural gas futures price sank to a low for this year, but oil prices soared Wednesday as the US Energy Information Administration reported US crude inventories fell by 4.2 million bbl to 287.1 million bbl during the week ended Aug. 27.

It marked the fifth decline in US crude stocks in as many weeks and the lowest level since mid-March. US gasoline stocks increased by 900,000 bbl to 206.6 million bbl during the same week, and distillate inventories were up by 1.3 million bbl to 126.4 million bbl, EIA said.

"Despite the recent slide in prices, little has changed in the fundamentals of the oil market, and the US weekly data should help to curtail speculative selling. It does not appear that global inventories are yet building fast enough, with global oil demand continuing to accelerate," said Paul Horsnell, Barclays Capital Inc., London.

Previous "twists and turns in Iraq export flows have been causing prices to fluctuate day-by-day," Horsnell said. "However, we have seen no real change in the underlying dynamic. That dynamic is not a good one. On the level of supply integrity, the system is insecure, has been pushed too far and degraded, as well as being liable to both technical and insurgent-created interruptions."

Moreover, he said, "The global pattern implies to us that prices above $40[/bbl] are justified, particularly when the implications of the current lack of flexibility are included. Demand is still key, and . . . global oil demand growth has been accelerating (on a rolling four quarters basis) since the beginning of 2000."

Energy prices
The October contract for benchmark US sweet, light crudes jumped by $1.88 to $44/bbl Wednesday on the New York Mercantile Exchange. That gain was "one of the largest of the past 12 months," said analysts at Raymond James & Associates Inc., St. Petersburg Fla. The November contract escalated by $1.92 to $43.96/bbl on NYMEX. On the US spot market, West Texas Intermediate at Cushing, Okla., increased by $1.89 to $44.01/bbl.

Meanwhile, Banc of America Securities LLC, New York, raised its WTI spot price forecast Wednesday to an average $35/bbl for 2005 from $30/bbl previously.

Heating oil for October delivery shot up by 5.95¢ to $1.1825/gal Wednesday on NYMEX. Gasoline for the same month climbed by 5.05¢ to $1.189/gal.

Natural gas falls
However, the October natural gas contract plummeted by 10.9¢ to $4.97/Mcf Wednesday, "dipping below $5[/Mcf] for the first time this year as Hurricane Frances is forecast to miss the Gulf of Mexico, heading instead for Florida's east coast," said analysts Thursday at Enerfax Daily.

"Meteorologists put the odds at about 10% that the storm would enter the Gulf of Mexico. Even if the hurricane did cross over southern Florida to enter the area, the chances of it repeating the destructive path of Hurricane Andrew back in 1992 was deemed to be small," they said.

Banc of America Securities raised its composite spot market natural gas price forecast to $6/Mcf for 2005, up from $5.50/Mcf previously.

In London, the October contract for North Sea Brent crude jumped by $1.86 to $41.47/bbl on the International Petroleum Exchange. Gas oil for September delivery shot up by $17.75 to $370.75/tonne. The October natural gas contract escalated by 9.5¢ to the equivalent of $5.51/Mcf on IPE.

The average price for the Organization of Petroleum Exporting Countries' basket of seven benchmark crudes gained 66¢ to $38.81/bbl Wednesday.

"If anyone is still counting, the run of trading days above the OPEC target band [of $22-28/bbl] currently stands at 182," Horsnell noted.

Contact Sam Fletcher at [email protected]