Market watch: Energy futures prices continue to rise with bullish inventories reports

Buoyed by bullish reports of US petroleum inventories, energy futures prices rose in international markets Thursday. However, a surge of profit-taking late in the session capped the price rise, analysts said.

Feb. 22, 2002

3 min read

By the OGJ Online Staff

HOUSTON, Feb. 22 -- Buoyed by bullish reports of US petroleum inventories, energy futures prices rose in international markets Thursday.

However, a surge of profit-taking late in the session capped the price rise, analysts said.

The April contract for benchmark US light, sweet crudes gained 52¢ to $20.95/bbl on the New York Mercantile Exchange, while the May position advanced 49¢ to $21.11/bbl.

Home heating oil for March delivery bumped up 1.85¢ to 54.94¢/gal on the NYMEX. Unleaded gasoline for the same month increased 0.92¢ to 58.36¢/gal. The March natural gas contract added 4¢ to $2.43/Mcf.

In London, the April contract for North Sea Brent crude was up 51¢ to $20.37/bbl on the International Petroleum Exchange. But the March natural gas contract dipped 3.3¢ to the equivalent of $2.43/Mcf.

That marks one of the few times in nearly 6 months that the price of the near-month IPE contract for European natural gas hasn't exceeded the comparable NYMEX position. On Aug. 28, the NYMEX gas position dropped 29¢ to $2.42/Mcf, undercutting the comparable IPE near-month gas contract in London that also lost 10.2¢ to the equivalent of $2.50/Mcf. Except for two brief periods, the equivalent IPE natural gas price has remained higher than the NYMEX price ever since (OGJ Online, Jan. 31, 2002).

In the London market, natural gas futures prices are linked to oil prices that normal lag by 6 months.

The American Gas Association reported the withdrawal of 112 bcf of gas from US underground storage last week, less than had been expected by analysts. That compares with withdrawals of 156 bcf the previous week and 81 bcf during the same period a year ago.

US gas storage levels now exceed 1.9 tcf, "or more than double last year at this juncture, with a year-over-year surplus of 984 bcf," said Robert Morris at Salomon Smith Barney Inc.

With the significant decline in natural gas prices since the beginning of last year, Morris said, "We estimate that about 75% of US ammonia production that was shut in early last year is now back on line."

Natural gas represents 70-80% of the cost of making anhydrous ammonia, the key ingredient in nearly all nitrogen fertilizers made in the US and UK. At a projected composite spot price in the neighborhood of $2.25/Mcf, Morris said, that restored production should remain on line through 2002.

"Ammonia production was up roughly 70% year-over-year in January, which added roughly 500 MMcfd of incremental natural gas demand compared with last year," he said. "We estimate that incremental domestic ammonia production should provide an estimated 0.3% increase in natural gas demand, on average, in 2002 compared with last year."

However, at Cambridge Energy Research Associate's annual energy conference last week in Houston, Michael Bennett, president and CEO of Terra Industries Inc., Sioux City, Iowa, warned that some of the US ammonia and other industrial chemical markets lost when natural gas prices spiked in the winter of 2000-01 have since been captured by foreign imports.

US ammonia imports have increased 20% this year over 1998 levels as more US manufacturing capacity was shut down in the face of higher costs for natural gas and lower prices for methanol and nitrogen products, he said.