RBC Capital
Investment Opinion
Natural gas bid week prices were $5.79/Mcf for October, $7.63/Mcf for November, and $7.81/Mcf for December. Therefore, we are increasing our 4Q04 gas forecast to $7.07/Mcf from $5.50/Mcf. Henry Hub spot prices have averaged roughly $0.43/Mcf below the bid week prices for October and November and are currently $1.12/Mcf below the December bid week.
WTI has averaged approximately $50.91/Bbl during October and November. Assuming oil prices remain in the low-to-mid $40s during December, we expect 4Q04 WTI to average $48.75/Bbl, up from our previous $38.00/Bbl forecast.
Our 2005 and beyond commodity price forecasts are currently under review. For now, we are maintaining our $34/Bbl (2005), $30/Bbl (2006), and $28/Bbl (long-term) oil price forecasts and our $5.35/Mcf (2005), $4.50/Mcf (2006), and $4.25 (long-term) natural gas price forecasts. We think there is more upside risk to our long-term commodity price forecasts than downside risk.
We expect crude oil to move close to $40/Bbl based on OPEC production capacity increasing and demand growth declining. Natural gas prices could soften further, especially if the winter continues to be warmer than average in the U.S. We expect gas storage, now 331 Bcf above the five-year average, to stay at surplus levels through the winter, assuming average winter weather. Our model suggests a tightening of the natural gas market based on more gas demand for cooling needs during summer 2005. |
