Hi Tim, a pretty bearish NG article in yesterday's WSJ commodities section, I'm wondering if they are a little too bearish on NG? I do think we'll see the flip occur (if it's not already) to maximum NG usage in the summer for Power Generation, in the next several years.
But Maybe I'll be proven wrong on this.
John
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As Heating Season Draws Near End,Natural-Gas Prices Continue Decline
By PETER A. MCKAY
Staff Reporter of THE WALL STREET JOURNAL
NEW YORK -- Winter can't last long enough for the nation's natural-gas traders.
Despite a modest rally since last week, the commodity's price is in a long-term freefall, inventories are near record highs and, with the prime heating season about to end, there is now little hope for a sustained turnaround anytime soon, traders say. From its high last winter, natural gas has sunk $7.743, or a whopping 77%, to $2.357 per million British thermal units at the New York Mercantile Exchange.
Some analysts believe gas could be headed to a multiyear low below $1.65 by the time summer rolls around. Moreover, it seems last year's talk of a shift in the basic dynamics of the gas market, including a growing inflationary role in the broader economy, may have been premature.
"We've seen a lot of the benefit already in our heating bills, but that's really only the first phase of the relief we'll see from lower gas prices," said Jim Glassman, senior U.S. economist for Chase Securities. "There is still indirect benefit to flow through all kinds of consumer products" whose prices factor in energy costs of manufacturing and transportation.
For gas companies whose shares have already been battered by Enron's collapse, declining prices have been an additional pitfall. El Paso Energy is down 12.4% so far this year, while Williams Cos. has tumbled 39.4% and Anadarko Petroleum has fallen 8.3% so far this year.
Already, gas prices below $3 barely meet many firms' costs of production and transportation, said analyst Ron Barone of UBS Warburg. Both Anadarko and Apache Corp. cited lower gas prices in reporting fourth-quarter earnings declines of more than 65%. In addition, Devon Energy reported a $556 million charge related to the market decline, and Newfield Exploration wrote down $68 million.
As the gas price has continued to drop, firms are shutting down production in response, with the number of active gas-drilling facilities down about 40% since the summer. Mr. Barone said that supply cutback ultimately may provide the seed for a gas rally sometime in the fourth quarter.
The commodity market for natural gas has been healthy lately, with prices rising about 5% in the last two weeks at Nymex. But that mainly has been due to "short covering," or buying to reverse bearish bets, by commodity funds who have simply "run out of patience" waiting all winter for cold weather, said energy trader Mike Fitzpatrick, of Fimat USA. Since those funds aren't buying because of any real confidence in gas itself, that means there will be little bullishness to support prices once those short positions are unwound, he said.
In regular commodity trading Thursday:
LUMBER: Prices climbed at the Chicago Mercantile Exchange, reflecting cash market demand from retailers rebuilding inventories. Gains were spurred this week by Monday's news of a 16.2% rise in existing home sales in January from December. The March contract rose $9 to $311 per thousand board feet, bringing its gain since Nov. 12 to $83.
HOGS: Prices gained after some late buying at CME, on the prospect of steady or higher bids for cash hogs on Friday. There was talk that packers may need hogs to fill in near-term inventories. The April contract rose 0.62 cent to 60.35 cents a pound.
-- Lester Aldrich contributed to this report. |
