R. James - First Ever Summer Withdrawal
US natural gas prices have hit bottom for 2006: energy analyst
Washington (Platts)--25Jul2006
Natural gas prices have already hit their bottom and are heading up,
helped in part by record heat across the country, investment bank Raymond
James' energy analyst said late Monday, predicting that the market will end
the injection season with record high levels of gas in storage without a price
"meltdown."
"We believe that this week's gas storage report could be an important
turning point for the market," Raymond James analyst Marshall Adkins said in a
note to clients. "We are estimating that weekly injections will only total 16
Bcf (the lowest injection ever reported at this time of the year) compared to
41 Bcf injected last year and 66 Bcf injected on average over the past five
years."
"More importantly, we think the heat experienced last week could drive
gas-fired electric generation demand even higher than our model predicts,"
Adkins said, resulting in a first-ever withdrawal from storage during the
injection season.
Adkins model shows as inverse correlation between changes in storage
levels and changes in price; specifically, if the change in surplus gas in
storage shrinks, prices rise, and vie-versa. "Directional moves in the
year-over-year gas storage differential consistently mirror directional tops
and bottoms in US natural gas prices," Adkins explained.
"The gas storage numbers over the past six weeks suggest that gas
supply/demand is getting tighter," Adkins added. "As demand had returned, the
year-over-year gas inventory surplus is beginning to shrink."
"We believe that US natural gas prices have already seen the lows for the
year," he concluded.
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