Gas futures price plummets with record storage injection
Sam Fletcher
Senior Writer
HOUSTON, June13 -- Natural gas futures prices plummeted Thursday on the New York Mercantile Exchange after the US Energy Information Administration reported the largest ever injection into US underground storage.
The July gas contact plunged 60.7¢ to $5.61/Mcf on news that the industry put a record 125 bcf of gas into storage during the week ended June 6. It was the largest injection ever recorded by IEA, although the previous record high of 120 bcf was reported by the American Gas Association when it tracked that data.
IEA revision
Meanwhile, the Paris-based International Energy Agency reported Friday that oil inventories among Organization for Economic Cooperation and Development (OECD) countries rose by 720,000 b/d to 2.4 billion bbl in April, including an "unprecedented" upwards revision of March stocks by 79 millon bbl.
"The magnitudeof these revisions is unprecedented and the timing unfortunate, given that the market is seeing direction in the aftermath of the war in Iraq," said IEA officials.
Analysts at Merrill Lynch Global Securities Research & Economics Group, New York, projected a sharp drop in oil prices as a result of the IEA revision, "effectively reversing it's month earlier downward revision for the February data point."
IEA reported world oil production rose by 289,000 b/d in May, with the Organization of Petroleum Exporting Countries contributing 221,000 b/d and non-OPEC producers adding 168,000 b/d.
Gas market
NYMEX trade in natural gas futures Thursday "opened down and dropped sharply lower early, crashing through $6(/Mcf) after the EIA report to just above $5.80(/Mcf) by midmorning, where it traded until midafternoon before another late sell-off," analysts said Friday at Enerfax Daily. If the contract closes even lower at the end of Friday's session, it could "confirm a near-term trend change," they warned.
"Recently, storage injections have exceeded expectations. And with expectations for another huge injection next week, and fairly mild (weather) forecasts into next week, futures are likely to stay on the defensive near-term," said Enerfax analysts. "But longer-term concerns about low storage and faltering production should limit the downside, particularly with an uncertain summer cooling and hurricane season still ahead."
Many analysts and industry observers were expecting a smaller injection report for the week ended June 6 after EIA chalked up an injection of 114 bcf for the week ended May 30, during which many commercial and some industrial gas consumers were closed for the US Memorial Day holiday.
Based on the proprietary market models of Banc of America Securities LLC, New York, the latest gas storage injection data reflects a "backed-out" demand loss of 8 bcfd from year-ago levels, "while the rolling 4-week average is 5.4 bcfd," said Robert S. Morris, an analyst with that firm. Although some industrial demand was destroyed as several dual-fueled plants switched from gas to cheaper petroleum products, Morris said, "We don't believe 3-4 bcfd of incremental demand was backed out in 1 week."
Instead, he blames "the recent emergence of a strong economic incentive for operators or speculators to inject gas into storage given the spread between the Henry Hub(, Okla., physical delivery point for NYMEX gas futures contracts) cash price and the outer-month NYMEX futures contract price." He said, "During the past week, the January 2004 NYMEX futures contract price was about 50-70¢/MMbtu higher than the Henry Hub cash price. Thus, operators and speculators could buy gas and put it into storage, sell the January 2004 NYMEX contract, and lock in a significant profit, since the total carrying cost for the gas in storage is only 3-4¢/MMbtu per month."
Much of the gas injected into storage last week was taken from gas pipelines that have "recently been effectively acting as storage," said Morris. High demand open flow orders "were reported last week on the El Paso and Florida Gas Transmission systems" as "more gas was being taken from the pipeline than was being put into it at the field or wellhead location."
US gas storage now stands at 1.3 tcf, up significantly from a record low of 623 bcf during the week of Apr. 11, but still well below the 2 tcf of gas that was in storage at this time last year and the prior 5-year average of 1.8 tcf. Despite last week's record injection "and likely further triple digit figures" in coming weeks, the US is unlikely to reach the 3 tcf "comfort level" by the Nov. 1 start of the winter heating season, said Ronald Barone at UBS Warburg LLC, New York.
To reach that goal would require an average injection pace of 11.4 bcfd through October, down from a previous requirement of 11.7 bcfd, yet well above an average injection rate of 9.2 bcfd over the past 9 years, Barone said.
Oil prices retreat
Futures prices for crudes and petroleum products also fell Thursday as traders took their profits from the recent rally. However, analysts said the market also was impacted by this week's decision by the 10 active members of the Organization of Petroleum Exporting Countries not to tinker yet with their new production quotas and by Iraq's first post-war sale of 9.5 million bbl of the 10 million bbl of oil it had in storage (OGJ Online, June 12, 2004).
The July contract for benchmark US light, sweet crudes fell by 85¢ to the $31.51/bbl Thursday on NYMEX, while the August contract dropped 75¢ to $30.30/bbl. Unleaded gasoline for July delivery plummeted by 4.36¢ to 89.05¢/gal. Heating oil for the same month lost 2.68¢ to 76.42¢/gal.
In London, the July contract for North Sea Brent oil plunged 61¢ to $27.78/bbl on the International Petroleum Exchange. The July gas contract slipped by 0.7¢ to the equivalent of $2.89/Mcf on IPE.
The average price for OPEC's basket of seven benchmark crudes retreated 36¢ Thursday to $27.48/bbl.
Contact Sam Fletcher at samf@ogjonline.com
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From the bolded part, if that guy's right then last week's number and maybe also this week's are more temporary aberations than anything else. There is only so much gas that can get pushed around the way the guy describes, and then once that is over you have a 1:1 match of gas going into the pipeline vs. going out into storage.
You watch, as soon as the first tropical depression gets within 100 miles of the Gulf Coast the near-month contract will be back over $6. |
