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Gold/Mining/Energy : Big Dog's Boom Boom Room -- Ignore unavailable to you. Want to Upgrade?

To: Tomas who wrote (26632)	10/25/2003 12:07:30 AM
From: kollmhn	Read Replies (1) \| Respond to of 206223

Goldman says this: Inventories are on track to build well into November. Weekly fundamentals highlights US natural gas inventories built by a substantial 84 bcf last week to 3,028 bcf, which is 133 bcf below year-ago levels and 25 bcf above five-year average levels. The build continued the recent pattern of a counter-seasonal acceleration in builds, as weather has warmed significantly since the beginning of the month. Significantly colder weather in the Northeast this week, however, should help reverse this trend. Weekly focus • Last week, the weather-adjusted inventory build remained weak, pushing the four-week average build to 3.9 bcf/d above normal. If this weakness in the underlying balance is sustained at current levels, we estimate that inventories would continue to build eleven days into November on normal weather (versus normally drawing on November 1st). This scenario would push the inventory level to a peak of 3,140 bcf before winter draws begin, just 30 bcf below last year’s peak record level. • At these inventory levels, injection difficulties typically become more prevalent, increasing the likelihood that surplus gas, which cannot find a home in storage, exerts potentially severe downward pressure on cash and front-month prices. Such injection difficulties also have the potential to slow inventory builds relative to normal. While such a slowdown may leave inventories short of the 3,140 bcf suggested by the pace of the recent build, such slowing would actually signal a severe surplus in the market rather than an improvement in the underlying balance. Hedging recommendations We believe that natural gas prices will remain range-bound, with residual fuel oil prices providing a floor and distillate fuel prices providing a ceiling, until significant and sustained supply growth eases the chronic imbalances in the US natural gas market. Given that calendar 2004 natural gas swap was trading at $4.93/mmBtu on October 23, 2003, on the upper-end of this range, we believe the upside to calendar 2004 natural gas prices is limited. Reinforcing this view is the relatively high level of oil prices and cracks, which are currently trading above our forecasts. Accordingly, we believe oil price and crack risk for calendar 2004 is skewed to the downside, suggesting the distillate price ceiling for natural gas may decline, with limited upside. We therefore recommend selling calendar 2004 natural gas, but would advise using option-based strategies to preserve the potential for upside participation.