MARKET WATCH: Another large injection of natural gas is logged in US storage
<a href=ogj.pennnet.com>Oil & Gas Journal Sam Fletcher Senior Writer
HOUSTON, May 29 -- There were 95 bcf of natural gas injected into US underground storage during the week ended May 23, the largest amount injected so far this season, the US Energy Information Administration reported Thursday.
That's on top of the previous seasonal record of 90 bcf of gas injected during the week ended May 16. US gas storage now stands at 1.09 tcf, down 762 bcf from year-ago levels and 508 bcf below the 5-year average.
Gas remains short But traders shouldn't become too complacent as a result of the two back-to-back large injections, said James K. Wicklund, an analyst in the Houston office of Banc of America Securities. "We still believe (the US) could come into winter with less than ideal gas in storage," he warned Thursday. "While weekly injections have averaged 9 bcf/week above normal since the start of the injection season (at the beginning of April), they need to average 17 bcf/week above normal now until winter for storage levels to return to 3 tcf (the 5-year average) by the start of the season."
Wicklund said US gas storage levels "should continue to be depressed enough to maintain high relative natural gas prices (in excess of $5/Mcf) at least through this year, causing E&P companies to continue drilling and oil service (firms) to continue selling their services."
Earlier this week, the Natural Gas Supply Association forecast continued upward pressure on natural gas prices this summer as a result of warm weather, increased storage, and flat production.
"While the weather is out of anyone's control, natural gas storage and production are issues that can and should be addressed," Wicklund said. With federal government officials now focusing on the structural shortage of gas in this country, he said, "We continue to look for a near-term solution in the form of an executive decision vs. a legislative bill."
June expiration record The expiring June natural gas contract rebounded by 4.5¢ Wednesday to close at $5.945/Mcf, the highest finish ever for that month on the New York Mercantile Exchange. "The June contract finished 74% above last year's settlement, and 16% above the April and May expirations," reported analysts last week at Enerfax Daily. But despite a late price surge Wednesday, they said, the June contract fell below the 3-day settlement average.
When NYMEX resumed trading Tuesday after the long US Memorial Day weekend, the June natural gas contract had plunged below $6/Mcf for the first time since mid-May, dropping 21.9¢ to $5.90/Mcf as moderate weather and weaker cash prices encouraged local distribution companies to liquidate, analysts reported (OGJ Online, May 28, 2003).
Wednesday, the market opened down and spent all morning trading around $5.80/Mcf, before rallying in the afternoon to as high as $6/Mcf as traders bought commodities to close out short sales, "despite a soft physical market and fairly mild weather forecasts through next week," analysts said.
The new near-month July gas contract inched up 0.5¢ to $6.016/Mcf Wednesday on NYMEX and may climb higher this week, if traders continued to cover short positions.
Meanwhile, cash market prices for natural gas continue to lag futures market, "which is a function of not having hot weather east of the Rockies," analysts said.
Oil prices The July contract for benchmark US sweet, light crudes dropped 77¢ to $28.58/bbl Wednesday on NYMEX, while the August position retreated by 74¢ to $27.65/bbl. Unleaded gasoline for June delivery fell by 1.72¢ to 87.8¢/gal. Heating oil for the same month was down 1.64¢ to 72.96¢/gal.
In London, the July contract for North Sea Brent oil lost 75¢ to $25.59/bbl on the International Petroleum Exchange. The June natural gas contract declined by 5.8¢ to the equivalent of $2.68/Mcf on IPE.
The Vienna offices of the Organization of Petroleum Exporting Countries were closed Thursday, so no price report was available for the OPEC basket of seven benchmark crudes.
Oil supplies Meanwhile, oil supplies remain "overstated out of Venezuela, delayed out of Iraq, and controlled out of Saudi Arabia," said Tyler Dann, another analyst in the Houston office of Banc of America Securities.
"Venezuela still appears to be producing 500,000 b/d less than they are publicly advertising," Dann reported Thursday. "Furthermore, their refineries are unable to produce meaningful gasoline volumes because of (a) severe employee shortfall after Venezuelan President Hugo Chávez fired many skilled refinery workers following the general strike of late 2002-early 2003."
Dann also reported "further confirmation that looting has indeed impaired Iraqi productive capacity near-term."
Earlier this week, EIA officials quoted Thamir Ghadhban, Iraq's acting oil minister, as saying he expects Iraqi oil production to double within a month (OGJ Online, May 28, 2003). Ghadhban previously reported that Iraqi oil production was set to rise "within weeks" to 1.5 million b/d from 235,000 b/d currently. Such production level would be enough to meet Iraq's domestic needs of around 500,000 b/d, leaving 1 million b/d to export (OGJ Online, May 6, 2003).
US and Iraqi officials reported Iraq's two main export terminals, Mina al-Bakr in the south and the Turkish port of Ceyhan, are operational and ready to resume exports. The first post-war exports of Iraqi oil are expected to start in mid-June from storage tanks in Ceyhan. Close to 9 million bbl of Iraqi oil is stored at Ceyhan (OGJ Online, May 23, 2003).
Meanwhile, Dann said, "Saudi Arabia is believed to have reasserted its leadership role within OPEC again," following the reappointment of Ali Ibrahim al-Naimi as oil minister for the kingdom. He said Saudi Arabia appears inclined "to pursue price-maximization strategy" to keep oil prices within OPEC's targeted ban of $22-28/bbl.
On the demand side, Dann reported that the impact of the severe acute respiratory syndrome (SARS) virus on Asia-Pacific oil markets "has likely peaked, and in fact there is some anecdotal evidence that some far-East airlines may be buying incremental jet fuel volumes as of very recently."
Additionally, he reported, "The Japanese nuclear situation remains dire, with 26 plants now believed to be down indefinitely (at least through the summer) for safety reasons; so long as these plants are down, local power-related demand for crude oil, oil products, and liquefied natural gas should remain more robust than the local economy would indicate."
Contact Sam Fletcher at samf@ogjonline.com